As filed with the Securities and Exchange Commission
on July 25, 1996
Registration No. 2-97817; 811-4305
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ( )
Post-Effective Amendment No. 44 (X)
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 ( )
Amendment No. 46 (X)
(Check appropriate box or boxes)
------------------------
NATIONS FUND TRUST
(Exact Name of Registrant as specified in Charter)
111 Center Street
Little Rock, Arkansas 72201
(Address of Principal Executive Offices, including Zip Code)
--------------------------
Registrant's Telephone Number, including Area Code: (800) 321-7854
Richard H. Blank, Jr.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
(Name and Address of Agent for Service)
With copies to:
Robert M. Kurucza, Esq. Carl Frischling, Esq.
Marco E. Adelfio, Esq. Kramer, Levin, Naftalis
Morrison & Foerster LLP & Frankel
2000 Pennsylvania Ave., N.W. 919 3rd Avenue
Suite 5500 New York, New York 10022
Washington, D.C. 20006
It is proposed that this filing will become effective (check appropriate box):
( ) Immediately upon filing pursuant (X) on July 31, 1996, 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.
No filing fee is required under the Securities Act of 1933 because an indefinite
number of shares of beneficial interest in the Registrant, without par value,
has previously been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. The Registrant filed on May 24, 1996, the
notice required by Rule 24f-2 for its fiscal period ended March 31, 1996.
<PAGE>
EXPLANATORY NOTE
This Post-Effective Amendment No. 44 to the Registration Statement of
Nations Fund Trust (the "Trust") is being provided to update financial
information and other non-material changes.
<PAGE>
NATIONS FUND TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
Item No. Prospectus
<S> <C>
1. Cover Page ................................................ Cover Page
2. Synopsis .................................................. Expenses Summary
3. Condensed Financial
Information ................................................ Financial Highlights; How
Performance Is Shown
4. General Description of
Registrant ................................................. Cover Page; Objectives; How
Objectives Are Pursued; Organization And
History
5. Management of the Fund ..................................... How The Funds Are Managed
6. Capital Stock and Other
Securities ................................................. How To Buy Shares; How The
Funds Value Their Shares; How Dividends
And Distributions Are Made; Tax
Information
7. Purchase of Securities Being
Offered .................................................... Cover Page; How To Buy Shares
8. Redemption or Repurchase ................................... How To Redeem Shares; How To
Exchange Shares
9. Legal Proceedings .......................................... Organization And History
Part B
Item No.
10. Cover Page.................................................. Cover Page
11. Table of Contents........................................... Table of Contents
12. General Information and
History..................................................... Introduction
<PAGE>
13. Investment Objectives and
Policies.................................................... Additional Information on Fund
Investments
14. Management of the Registrant................................ Trustees And Officers
15. Control Persons and Principal
Holders of Securities....................................... Miscellaneous--Certain Record
Holders
16. Investment Advisory and Other Services...................... Investment Advisory, Administration,
Custody, Transfer Agency,
Shareholder Servicing,
Shareholder Administration And
Distribution Agreements
17. Brokerage Allocation ....................................... Fund Transactions and Brokerage--
General Brokerage Policy
18. Capital Stock and Other
Securities.................................................. Description Of Shares;
Investment Advisory,Administration,
Custody, Transfer Agency,
Shareholder Servicing And
Distribution Agreements
19. Purchase, Redemption and Pricing
of Securities Being Offered................................. Net Asset Value -- Purchases
And Redemptions; Distributor
20. Tax Status.................................................. Additional Information Concerning
Taxes
21. Underwriters................................................ Investment Advisory, Administration
Custody, Transfer Agency,
Shareholder Servicing,
Shareholder Administration And
Distribution Agreements
22. Calculation of Performance Data............................. Additional Information on
Performance
23. Financial Statements........................................ Independent Accountant and
Reports
<PAGE>
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>
Prospectus
PRIMARY A SHARES
JULY 31, 1996
MONEY MARKET FUNDS
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market
Fund
Nations Tax Exempt Fund
EQUITY FUNDS
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND
Nations Balanced Assets Fund
BOND FUNDS
Nations Short-Intermediate Government
Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government
Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income
Fund
Nations Intermediate Municipal
Bond Fund
Nations Florida Intermediate Municipal
Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal
Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate
Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate
Municipal Bond Fund
Nations North Carolina Municipal Bond
Fund
Nations South Carolina Intermediate
Municipal Bond Fund
Nations South Carolina Municipal Bond
Fund
Nations Tennessee Intermediate
Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal
Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal
Bond Fund
Nations Virginia Municipal Bond Fund
INVESTMENT ADVISER: NationsBanc Advisors, Inc.
SUB-INVESTMENT ADVISER: TradeStreet Investment Associates, Inc.
SUB-INVESTMENT ADVISER: Gartmore Global Partners
DISTRIBUTOR: Stephens Inc.
(Nations Fund Logo appears here)
<PAGE>
Prospectus
PRIMARY A SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund") of
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios"), each
an open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations Fund
Family"). This Prospectus describes one class of
shares of each Fund -- Primary A Shares (formerly
called Trust A Shares). Nations Disciplined Equity
Fund was formerly called "Nations Special Equity
Fund."
NATIONS PRIME FUND, NATIONS TREASURY FUND, NATIONS
GOVERNMENT MONEY MARKET FUND AND NATIONS TAX EXEMPT
FUND (THE "MONEY MARKET FUNDS") SEEK TO MAINTAIN A
NET ASSET VALUE OF $1.00 PER SHARE. INVESTMENTS IN
THESE FUNDS ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE
THAT THESE FUNDS WILL BE ABLE TO MAINTAIN A STABLE
NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information
about each Fund that a prospective purchaser of
Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios is contained in separate Statements of
Additional Information (the "SAIs"), that have been
filed with the Securities and Exchange Commission
(the "SEC") and are available upon request without
charge by writing or calling Nations Fund at its
address or telephone number shown below. The SAIs
for Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios, each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc. ("NBAI")
is the investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to certain of the Funds and
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the other Funds. As used
herein the "Adviser" shall mean NBAI, TradeStreet
and/or Gartmore as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
MONEY MARKET FUNDS:
Nations Prime Fund
For Fund information call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
<PAGE>
Nations Treasury Fund
Nations Government Money Market Fund
Nations Tax Exempt Fund
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS:
Nations Short-Intermediate Government Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate
Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
<PAGE>
Table Of Contents
Prospectus Summary 3
Expenses Summary 7
Financial Highlights 12
Objectives 37
How Objectives Are Pursued 40
How Performance Is Shown 54
How The Funds Are Managed 55
Organization And History 63
About The Funds
How To Buy Shares 65
How To Redeem Shares 65
How To Exchange Shares 66
How The Funds Value Their Shares 66
How Dividends And Distributions Are Made;
Tax Information 67
Appendix A -- Portfolio Securities 69
Appendix B -- Description Of Ratings 79
About Your
Investment
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) MONEY MARKET FUNDS:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent
consistent with the preservation of capital and the
maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment
objective is to seek as high a level of current income
as is consistent with liquidity and stability of
principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt
from Federal income taxes as is consistent with
liquidity and stability of principal.
(Bullet) EQUITY FUNDS:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations International Equity Fund's investment
objective is to seek long-term capital growth by
investing primarily in equity securities of non-United
States companies in Europe, Australia, the Far East
and other areas, including some developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective
is to seek long-term capital growth by investing
primarily in equity securities of companies in
emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far
East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is
to seek long-term capital growth by investing
primarily in equity securities of companies in the
Pacific Basin and the Far East (excluding Japan).
(Bullet) Nations Capital Growth Fund's investment objective is
to seek growth of capital by investing in companies
that are believed to have superior earnings growth
potential.
(Bullet) Nations Emerging Growth Fund's investment objective is
to seek capital appreciation by investing in emerging
growth companies that are believed to have superior
long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective
is to seek growth of capital by investing in companies
that are expected to produce significant increases in
earnings per share.
(Bullet) Nations Equity Index Fund's investment objective is to
seek investment results that correspond, before fees
and expenses, to the total return of the Standard &
Poor's 500 Composite Stock Price Index.
3
<PAGE>
(Bullet) BALANCED FUND:
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
(Bullet) BOND FUNDS:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with modest
fluctuation of principal. The Fund will invest primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment
objective is to seek current income by investing
primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective
is to seek current income consistent with minimal
fluctuation of principal. The Fund invests primarily
in short-term investment grade fixed income
securities.
(Bullet) Nations Diversified Income Fund's investment objective
is to seek current income consistent with total return
by investing primarily in a diversified portfolio of
fixed income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment
objective is to seek total return by investing
primarily in investment grade fixed income securities.
The Fund may invest in long-term, intermediate-term
and short-term securities.
(Bullet) Nations Global Government Income Fund's investment
objective is to maximize total return by investing
primarily in high quality debt securities issued by
governments, banks and supranational entities located
throughout the world.
(Bullet) Nations Municipal Income Fund's investment objective
is to seek current income exempt from Federal income
tax as is consistent with prudent investment risk.
Such Fund invests primarily in investment grade
obligations issued by or on behalf of states,
territories and possessions of the United States, the
District of Columbia, and their political
subdivisions, agencies, instrumentalities and
authorities, the interest on which, in the opinion of
counsel to the issuer or bond counsel, is exempt from
Federal income tax.
(Bullet) Nations Short-Term Municipal Income Fund's investment
objective is to seek current income exempt from
Federal income tax consistent with minimal fluctuation
of principal. Such Fund invests primarily in
investment grade obligations issued by or on behalf of
states, territories and possessions of the United
States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and
authorities, the interest on which, in the opinion of
counsel to the issuer or bond counsel, is exempt from
Federal income tax.
(Bullet) Nations Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from
Federal income tax consistent with moderate
fluctuation of principal.
(Bullet) Nations Florida Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal income tax and the Florida state
intangibles tax consistent with moderate fluctuation
of principal by investing primarily in
intermediate-term, investment grade municipal
securities.
(Bullet) Nations Florida Municipal Bond Fund's investment
objective is to seek current income exempt from
Federal income tax and the Florida state intangibles
tax as is consistent with prudent investment risk by
investing primarily in long-term, investment grade
municipal securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and Georgia state income taxes consistent
with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations Georgia Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and Georgia state income taxes as is consistent with
prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and Maryland state income taxes consistent
with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade
municipal securities.
4
<PAGE>
(Bullet) Nations Maryland Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and Maryland state income taxes as is consistent with
prudent investment risk by investing primarily in long-
term, investment grade municipal securities.
(Bullet) Nations North Carolina Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and North Carolina state income taxes
consistent with moderate fluctuation of principal by
investing primarily in intermediate-term, investment
grade municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and North Carolina state income taxes as is consistent
with prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and South Carolina state income taxes
consistent with moderate fluctuation of principal by
investing primarily in intermediate-term, investment
grade municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and South Carolina state income taxes as is consistent
with prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal income tax and the Tennessee Hall income
tax on unearned income consistent with moderate
fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal
securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
income tax and the Tennessee Hall income tax on unearned
income consistent with prudent investment risk by
investing primarily in long-term, investment grade
municipal securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal income tax consistent with moderate
fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal securities.
(Bullet) Nations Texas Municipal Bond Fund's investment objective
is to seek current income exempt from Federal income tax
as is consistent with prudent investment risk by
investing primarily in long-term, investment grade
municipal securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and Virginia state income taxes consistent
with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations Virginia Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and Virginia state income taxes as is consistent with
prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to certain
of the Funds and Gartmore Global Partners provides sub-advisory
services to the other Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Equity Funds and the Balanced Fund
declare and pay dividends from net investment income each calendar
quarter. The Money Market Funds and the Bond Funds declare dividends
daily and pay them monthly. Each Fund's net realized capital gains,
including net short-term capital gains, are distributed at least
annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. 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
5
<PAGE>
rate movements. In addition, debt securities which are not backed by
the United States Government are subject to credit risk, which is the
risk that the issuer may not be able to pay principal and/or interest
when due. Certain of the Fund's investments constitute derivative
securities. Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. Since the State Intermediate Municipal Bond Funds and
State Municipal Bond Funds invest primarily in securities issued by
entities located in a single state, such Funds are more susceptible to
changes in value due to political or economic changes affecting such
states or their subdivisions. For a discussion of these and other
factors, see "How Objectives Are Pursued -- Risk Considerations" and
"Appendix A -- Portfolio Securities."
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund
are designed for long-term investors seeking international
diversification and who are willing to bear the risks associated with
international investing, such as foreign currency fluctuations and
economic and political risks. For a discussion of these factors, see
"How Objectives Are Pursued -- Special Risk Considerations Relevant to
an Investment in the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global
Government Income Fund."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
6
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Primary A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
NATIONS FUND MONEY MARKET FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Government
Nations Prime Nations Money Market
Fund Treasury Fund Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
<CAPTION>
Nations
Tax
Exempt
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees (After Fee Waivers)1 .14% .14% .12%
<S> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .16% .16% .18%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30% .30% .30%
<CAPTION>
Management Fees (After Fee Waivers)1 .13%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .17%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Nations Equity Nations Nations
Value Income International Emerging
Fund Fund Equity Fund Markets Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Pacific Growth
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees .75% .70% .90% 1.10%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .21% .20% .27% 1.03%
Total Operating Expenses (After Expense Reimbursements)1 .96% .90% 1.17% 2.13%
<CAPTION>
Management Fees .90%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .86%
Total Operating Expenses (After Expense Reimbursements)1 1.76%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such expense
reimbursements.
7
<PAGE>
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Capital Emerging Disciplined Equity
Growth Growth Equity Index
Fund Fund Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Balanced
Assets
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees (After Fee Waivers)1 .75% .75% .75% .10%
<S> <C> <C> <C> <C>
All Other Expenses .21% .24% .27% .25%
Total Operating Expenses (After Fee Waivers)1 .96% .99% 1.02% .35%
<CAPTION>
Management Fees (After Fee Waivers)1 .75%
<S> <C>
All Other Expenses .25%
Total Operating Expenses (After Fee Waivers)1 1.00%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations
Short- Nations Nations Nations
Intermediate Government Short-Term Nations Strategic
Government Securities Income Diversified Fixed
Fund Fund Fund Income Fund Income Fund
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
<CAPTION>
Nations
Global
Government
Income
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C>
Management Fees (After Fee Waivers)1 .40% .50% .30% .50% .50%
All Other Expenses (After Expense Reimbursements)1 .23% .30% .25% ..27% .22%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .63% .80% .55% .77% .72%
<CAPTION>
Management Fees (After Fee Waivers)1 .70%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .62%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 1.32%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C> <C> <C>
Nations Nations
Nations Short-Term Nations Florida
Municipal Municipal Intermediate Intermediate
Income Income Municipal Municipal
Fund Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Florida
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees (After Fee Waivers)1 .30% .06% .17% .14%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .30% .34% .33% .36%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60% .40% .50% .50%
<CAPTION>
Management Fees (After Fee Waivers)1 .26%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .34%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
8
<PAGE>
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations
Georgia Nations Maryland Nations
Intermediate Georgia Intermediate Maryland
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
North
Carolina
Intermediate
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees (After Fee Waivers)1 .17% .10% .20% .12%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .33% .50% .30% .48%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .50% .60% .50% .60%
<CAPTION>
Management Fees (After Fee Waivers)1 .13%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .37%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .50%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations
Nations South Nations Nations
North Carolina South Tennessee
Carolina Intermediate Carolina Intermediate
Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Tennessee
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees (After Fee Waivers)1 .23% .18% .10% .07%
<S> <C> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .37% .32% .50% .43%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60% .50% .60% .50%
<CAPTION>
Management Fees (After Fee Waivers)1 .02%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .58%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements)1 .60%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
NATIONS FUND TAX-EXEMPT BOND FUNDS PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations Nations
Texas Nations Virginia
Intermediate Texas Intermediate
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
<CAPTION>
Nations
Virginia
Municipal
Bond Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Management Fees (After Fee Waivers)1 .11% .12% .24%
<S> <C> <C> <C>
All Other Expenses (After Expense Reimbursements)1 .39% .48% .26%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .50% .60% .50%
<CAPTION>
Management Fees (After Fee Waivers)1 .16%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .44%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .60%
</TABLE>
1 See page 10 for a discussion of the actual expenses absent such fee waivers
and/or expense reimbursements.
9
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Government Nations Nations Nations
Nations Nations Money Tax Nations Equity International
Prime Treasury Market Exempt Value Income Equity
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 3 $ 3 $ 3 $ 3 $ 10 $ 9 $ 12
3 Years $10 $10 $10 $10 $ 31 $ 29 $ 37
5 Years $17 $17 $17 $17 $ 53 $ 50 $ 64
10 Years $38 $38 $38 $38 $118 $111 $142
<CAPTION>
Nations Nations
Emerging Pacific
Markets Growth
Fund Fund
1 Year $ 22 $ 18
3 Years $ 67 $ 55
5 Years $114 $ 95
10 Years $246 $207
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Nations Nations Short- Nations
Nations Emerging Disciplined Equity Balanced Intermediate Government
Capital Growth Growth Equity Index Assets Government Securities
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 10 $ 10 $ 10 $ 4 $ 10 $ 6 $ 8
3 Years $ 31 $ 32 $ 32 $11 $ 32 $20 $26
5 Years $ 53 $ 55 $ 56 $20 $ 55 $35 $44
10 Years $118 $121 $125 $44 $122 $79 $99
<CAPTION>
Nations Nations
Short-Term Diversified
Income Income
Fund Fund
1 Year $ 6 $ 8
3 Years $18 $25
5 Years $31 $43
10 Years $69 $95
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Nations Nations Florida Nations
Strategic Global Nations Short-Term Intermediate Intermediate Florida
Fixed Government Municipal Municipal Municipal Municipal Municipal
Income Income Income Income Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 7 $ 13 $ 6 $ 4 $ 5 $ 5 $ 6
3 Years $23 $ 42 $19 $13 $16 $16 $19
5 Years $40 $ 72 $33 $22 $28 $28 $33
10 Years $89 $159 $75 $51 $63 $63 $75
<CAPTION>
Nations Nations
Georgia Georgia
Intermediate Municipal
Municipal Bond
Bond Fund Fund
1 Year $ 5 $ 6
3 Years $16 $19
5 Years $28 $33
10 Years $63 $75
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations Nations
Nations North Nations South Nations Nations
Maryland Carolina North Carolina South Tennessee
Intermediate Nations Intermediate Carolina Intermediate Carolina Intermediate
Municipal Maryland Municipal Municipal Municipal Municipal Municipal
Bond Municipal Bond Bond Bond Bond Bond Bond
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 5 $ 6 $ 5 $ 6 $ 5 $ 6 $ 5
3 Years $16 $19 $16 $19 $16 $19 $16
5 Years $28 $33 $28 $33 $28 $33 $28
10 Years $63 $75 $63 $75 $63 $75 $63
<CAPTION>
Nations
Nations Texas
Tennessee Intermediate
Municipal Municipal
Bond Bond
Fund Fund
1 Year $ 6 $ 5
3 Years $19 $16
5 Years $33 $28
10 Years $75 $63
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Virginia Nations
Texas Intermediate Virginia
Municipal Municipal Municipal
Bond Bond Bond
Fund Fund Fund
1 Year $ 6 $ 5 $ 6
3 Years $19 $16 $19
5 Years $33 $28 $33
10 Years $75 $63 $75
</TABLE>
10
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. Except for the Nations
Emerging Markets Fund, Nations Global Government Income Fund and Nations Pacific
Growth Fund, which fees and expenses are based on estimates, certain figures
contained in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees", "Other
Expenses" and "Total Operating Expenses" for Primary A Shares of the indicated
Fund would have been as follows: Nations Prime Fund -- .20%, .16% and .36%,
respectively; Nations Treasury Fund -- .20%, 16% and .36%, respectively; Nations
Government Money Market Fund -- .40%, .18% and .58%, respectively; Nations Tax
Exempt Fund -- .40%, .17% and .57%, respectively; Nations Intermediate Municipal
Bond Fund -- .50%, .33% and .83%, respectively; Nations Florida Intermediate
Municipal Bond Fund -- .50%, .36% and .86%, respectively; Nations Georgia
Intermediate Municipal Bond Fund -- .50%, .33% and .83%, respectively; Nations
Maryland Intermediate Municipal Bond Fund -- .50%, .32% and .86%, respectively;
Nations South Carolina Intermediate Municipal Bond Fund -- .50%, .32% and .82%,
respectively; Nations Municipal Income Fund -- .60%, .30% and .90%;
respectively; Nations Short-Term Municipal Income Fund -- .50%, .34% and .84%,
respectively; Nations Florida Municipal Bond Fund -- .60%, .34% and .94%,
respectively; Nations Georgia Municipal Bond Fund, .60%, .50%, and 1.10%,
respectively; Nations Maryland Municipal Bond Fund -- .60%, .48% and 1.08%,
respectively; Nations North Carolina Municipal Bond Fund -- .60%, .37% and .97%,
respectively; Nations South Carolina Municipal Bond Fund -- .60%, .50% and
1.10%, respectively; Nations Tennessee Municipal Bond Fund -- .60%, .58% and
1.18%, respectively; Nations Texas Municipal Bond Fund -- .60%, .48% and 1.08%,
respectively; Nations Virginia Municipal Bond Fund -- .60%, .44% and 1.04%,
respectively; Nations Virginia Intermediate Municipal Bond Fund -- .50%, .26%
and .76%, respectively; Nations North Carolina Intermediate Municipal Bond
Fund -- .50%, .37% and .87%, respectively; Nations Tennessee Intermediate
Municipal Bond Fund -- .50%, .43% and .93%, respectively; Nations Texas
Intermediate Municipal Bond Fund -- .50%, .39% and .89%, respectively. Absent
expense reimbursements, "Other Expenses" and "Total Operating Expenses" for
Primary A Shares of the indicated Fund would have been as follows: Nations
Equity Income Fund -- .20% and .90%, respectively; and Nations International
Equity Fund -- .26% and 1.16%, respectively. Absent fee waivers, "Management
Fees" and "Total Operating Expenses" for Primary A Shares of the indicated Fund
would have been as follows: Nations Equity Index Fund -- .50% and .75%,
respectively; Nations Short-Term Income Fund -- .60% and .85%, respectively;
Nations Short-Intermediate Government Fund -- .60% and .83%, respectively;
Nations Government Securities Fund -- .64% and .94%, respectively; Nations
Diversified Income Fund -- .60% and .87%, respectively; and Nations Strategic
Fixed Income Fund -- .60% and .82%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
11
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived
from the financial statements of Nations Fund Trust, Nations Fund, Inc.
and Nations Portfolios. Price Waterhouse LLP is the independent accountant
to Nations Fund Trust, Nations Fund, Inc. and Nations Portfolios. The reports
of Price Waterhouse LLP for the most recent fiscal years of Nations Fund
Trust, Nations Fund, Inc. and Nations Portfolios accompany the financial
statements for such periods and are incorporated by reference in the SAIs,
which are available upon request. For more information see "Organization
And History." Shareholders of a Fund will receive unaudited semi-annual reports
describing the Funds' investment operations and annual financial statements
audited by the Funds' independent accountant.
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0468 0.0519 0.0318 0.0328 0.0506
Dividends from net investment income (0.0468) (0.0519) (0.0318) (0.0328) (0.0506)
Total dividends and distributions (0.0468) (0.0519) (0.0318) (0.0328) (0.0506)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.79% 5.32% 3.22% 3.33% 5.19%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 2,472,469 $ 2,873,096 $ 2,883,762 $ 1,156,266 $ 500,476
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to average
net assets 5.62%+ 5.23% 3.20% 3.25% 5.03%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.37%+ 0.38% 0.37% 0.36% 0.42%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0463 $ 0.0511 $ 0.0311 $ 0.0322 $ 0.0494
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 5/31/91
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0749
Dividends from net investment income (0.0749)
Total dividends and distributions (0.0749)
Net asset value, end of period $ 1.00
Total return++ 7.75%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 574,993
Ratio of operating expenses to average net
assets 0.30%
Ratio of net investment income to average
net assets 7.47%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.44%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0735
</TABLE>
NATIONS PRIME FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0855 0.0839 0.0675
Dividends from net investment income (0.0855) (0.0839) (0.0675)
Total dividends and distributions (0.0855) (0.0839) (0.0675)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.88%+++ 8.71%+++ 6.94%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 433,298 $ 115,295 $ 264,063
Ratio of operating expenses to average net assets 0.32% 0.35% 0.36%
Ratio of net investment income to average net assets 8.43% 8.11% 6.73%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.50%+++ 0.55%+++ 0.56%+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0731+++ $ 0.0819+/+++ $ 0.0655+++
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0277
Dividends from net investment income (0.0277)
Total dividends and distributions (0.0277)
Net asset value, end of period $ 1.00
Total return++ 2.79%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 252,562
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.99%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.65%+/+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0247+++
</TABLE>
* The Nations Prime Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
12
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 5/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0458 0.0494 0.0297 0.0307 0.0483
Dividends from net investment income (0.0458) (0.0494) (0.0297) (0.0307) (0.0483)
Distributions from net realized capital
gains (0.0000)# (0.0000)# -- -- --
Total dividends and distributions (0.0458) (0.0494) (0.0297) (0.0307) (0.0483)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.67% 5.05% 2.99% 3.12% 4.95%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 821,030 $ 2,896,868 $ 2,679,992 $ 2,956,796 $1,094,741
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.29%
Ratio of net investment income to average
net assets 5.52%+ 4.99% 2.97% 3.02% 4.82%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.37%+ 0.35% 0.36% 0.36% 0.42%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0453 $ 0.0489 $ 0.0292 $ 0.0302 $ 0.0470
<CAPTION>
YEAR
ENDED
PRIMARY A SHARES 5/31/91
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0721
Dividends from net investment income (0.0721)
Distributions from net realized capital
gains --
Total dividends and distributions (0.0721)
Net asset value, end of period $ 1.00
Total return++ 7.46%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 955,186
Ratio of operating expenses to average net
assets 0.25%
Ratio of net investment income to average
net assets 7.04%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.43%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0703
</TABLE>
NATIONS TREASURY FUND (CONT.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0829 0.0802 0.0630
Dividends from net investment income (0.0829) (0.0802) (0.0630)
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.0829) (0.0802) (0.0630)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.61%+++ 8.33%+++ 6.49%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 392,843 $ 90,946 $ 111,414
Ratio of operating expenses to average net assets 0.25% 0.39% 0.38%
Ratio of net investment income to average net assets 8.18% 7.93% 6.31%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.59%+++ 0.58%+++ 0.65%+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0693+++ $ 0.0783+++ $ 0.0603+++
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0262
Dividends from net investment income (0.0262)
Distributions from net realized capital gains --
Total dividends and distributions (0.0262)
Net asset value, end of period $ 1.00
Total return++ 2.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 66,221
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.68%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.75%+/+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0222+++
</TABLE>
* Nations Treasury Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
13
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0173 0.0558 0.0375 0.0294
Distributions:
Dividends from net investment income (0.0173) (0.0558) (0.0375) (0.0294)
Distributions from net realized capital gains -- -- (0.0000)# --
Total dividends and distributions (0.0173) (0.0558) (0.0375) (0.0294)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.74% 5.72% 3.84% 2.96%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 336,771 $ 332,895 $ 432,729 $ 475,180
Ratio of operating expenses to average net assets 0.30%+ 0.30% 0.30% 0.30%
Ratio of net investment income to average net assets 5.20%+ 5.58% 3.79% 2.91%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.59%+ 0.57% 0.59% 0.56%
Net investment income per share without waivers and/or
expense reimbursements $ 0.0163 $ 0.0531 $ 0.0347 $ 0.0269
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/92 11/30/91*
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0358 0.0571
Distributions:
Dividends from net investment income (0.0358) (0.0571)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.0358) (0.0571)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 3.63%+++ 5.87%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 414,412 $ 333,979
Ratio of operating expenses to average net assets 0.42% 0.43%+
Ratio of net investment income to average net assets 3.55% 5.49%+
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.58% 0.62%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.0341 $ 0.0551
</TABLE>
* Nations Government Money Market Fund Primary A Shares commenced operations on
December 3, 1990.
+ Annualized.
++ Total return represents aggregate return for the periods indicated and does
not reflect the deduction of any applicable sales charge.
+++ Unaudited.
# Amount represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91 11/30/90
Operating
performance:
Net asset value,
beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment
income 0.0112 0.0361 0.0257 0.0223 0.0267 0.0422 0.0550
Dividends from net
investment income (0.0112) (0.0361) (0.0257) (0.0223) (0.0267) (0.0422) (0.0550)
Total dividends and
distributions (0.0112) (0.0361) (0.0257) (0.0223) (0.0267) (0.0422) (0.0550)
Net asset value, end
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.12% 3.68% 2.60% 2.27% 2.70%+++ 4.31%+++ 5.63%+++
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in 000's) $1,078,764 $ 905,125 $ 820,677 $ 701,403 $ 329,265 $ 168,829 $ 173,834
Ratio of operating
expenses to
average net assets 0.30%+ 0.30% 0.27% 0.23% 0.40% 0.42% 0.40%
Ratio of net
investment income
to average net
assets 3.35%+ 3.62% 2.59% 2.23% 2.65% 4.23% 5.51%
Ratio of operating
expenses to
average net assets
without waivers
and/or expense
reimbursements 0.58%+ 0.57% 0.59% 0.59% 0.57% 0.60% 0.75%
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.0103 $ 0.0335 $ 0.0226 $ 0.0187 $ 0.0250 $ 0.0404 $ 0.0515
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/89 11/30/88*
Operating
performance:
Net asset value,
beginning of
period $ 1.00 $ 1.00
Net investment
income 0.0600 0.0350
Dividends from net
investment income (0.0600) (0.0350)
Total dividends and
distributions (0.0600) (0.0350)
Net asset value, end
of period $ 1.00 $ 1.00
Total return++ 6.17%+++ 3.55%+++
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 145,109 $ 143,245
Ratio of operating
expenses to
average net assets 0.40% 0.40%+
Ratio of net
investment income
to average net
assets 6.00% 4.97%+
Ratio of operating
expenses to
average net assets
without waivers
and/or expense
reimbursements 0.74% 0.75%+
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.0566 $ 0.0325
</TABLE>
* Nations Tax Exempt Fund Primary A Shares commenced operations on March 14,
1988.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
14
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
Operating performance:
Net asset value, beginning of
period $ 16.21 $ 12.98 $ 13.74 $ 12.45 $ 11.16 $ 9.71
Net investment income/loss 0.07 0.27 0.24 0.24 0.28 0.34
Net realized and unrealized
gain/(loss) on investments 1.06 3.91 (0.23) 1.38 1.57 1.47
Net increase/(decrease) in net
asset value from operations 1.13 4.18 0.01 1.62 1.85 1.81
Distributions:
Dividends from net investment
income (0.12) (0.28) (0.23) (0.24) (0.27) (0.36)
Distributions from net realized
capital gains (0.62) (0.67) (0.54) (0.09) (0.29) --
Total dividends and distributions (0.74) (0.95) (0.77) (0.33) (0.56) (0.36)
Net asset value, end of period $ 16.60 $ 16.21 $ 12.98 $ 13.74 $ 12.45 $ 11.16
Total return++ 7.20% 34.53% (0.08)% 13.19% 17.00%+++ 18.79%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 998,957 $ 956,669 $ 799,743 $ 707,185 $ 282,138 $ 82,360
Ratio of operating expenses to
average net assets 0.96%+ 0.94% 0.93% 0.96% 0.90% 0.53%
Ratio of net investment
income/(loss) to average net
assets 1.30%+ 1.90% 1.85% 1.98% 2.31% 3.33%
Portfolio turnover rate 12% 63% 75% 64% 60% 51%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 0.96%+ 0.94% 0.93% 0.97% 0.97% 0.99%
Net investment income/(loss) per
share without waivers and/or
expense reimbursements $ 0.07% $ 0.27 $ 0.24 $ 0.24 $ 0.27 $ 0.30
Average commission rate paid (b) $ 0.0648 N/A N/A N/A N/A N/A
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/90 11/30/89*#
Operating performance:
Net asset value, beginning of
period $ 10.04 $ 10.00
Net investment income/loss 0.35 0.08
Net realized and unrealized
gain/(loss) on investments (0.36) (0.04)
Net increase/(decrease) in net
asset value from operations (0.01) 0.04
Distributions:
Dividends from net investment
income (0.32) --
Distributions from net realized
capital gains -- --
Total dividends and distributions (0.32) --
Net asset value, end of period $ 9.71 $ 10.04
Total return++ (0.16)%+++ 0.40%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 19,769 $ 5,161
Ratio of operating expenses to
average net assets 0.21% 0.49%+
Ratio of net investment
income/(loss) to average net
assets 4.19% 4.41%+
Portfolio turnover rate 24% --
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.11% 1.41%+
Net investment income/(loss) per
share without waivers and/or
expense reimbursements $ 0.26 $ 0.06
Average commission rate paid (b) N/A N/A
</TABLE>
* Nations Value Fund Primary A Shares commenced operations on September 19,
1989.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
15
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 11.81 $ 11.43 $ 12.06 $ 11.41 $ 10.19
Net investment income/(loss) 0.30 0.42 0.38 0.37 0.34
Net realized and unrealized gain/(loss) on
investments 1.77 1.11 0.22 1.08 1.25
Net increase/(decrease) in net asset value
from operations 2.07 1.53 0.60 1.45 1.59
Distributions:
Dividends from net investment income (0.37) (0.42) (0.42) (0.35) (0.30)
Distributions from net realized capital
gains (0.37) (0.73) (0.81) (0.45) (0.07)
Total dividends and distributions (0.74) (1.15) (1.23) (0.80) (0.37)
Net asset value, end of period $ 13.14 $ 11.81 $ 11.43 $ 12.06 $ 11.41
Total return++ 17.98% 14.79% 5.00% 13.30% 15.91%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 283,142 $ 283,082 $ 225,740 $ 175,949 $ 18,104
Ratio of operating expenses to average net
assets 0.90%+ 0.92% 0.94% 0.92% 1.10%
Ratio of net investment income/(loss) to
average net assets 2.84%+ 3.75% 3.41% 3.37% 3.15%
Portfolio turnover rate 59% 158% 116% 55% 84%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.90%+ 0.93% 0.95% 1.04% 2.21%
Net investment income/(loss) per share
without waivers and/or expense
reimbursements $ 0.30 $ 0.42 $ 0.38 $ 0.36 $ 0.22
Average commission rate paid (c) $ 0.0287 N/A N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/91*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.05
Net realized and unrealized gain/(loss) on
investments 0.14
Net increase/(decrease) in net asset value
from operations 0.19
Distributions:
Dividends from net investment income --
Distributions from net realized capital
gains --
Total dividends and distributions --
Net asset value, end of period $ 10.19
Total return++ 1.90%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 10,194
Ratio of operating expenses to average net
assets 1.12%+
Ratio of net investment income/(loss) to
average net assets 3.66%+
Portfolio turnover rate 9%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.80%+
Net investment income/(loss) per share
without waivers and/or expense
reimbursements $ (0.06)
Average commission rate paid (c) N/A
</TABLE>
* Nations Equity Income Fund Primary A Shares commenced operations on April
11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
16
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERNATIONAL EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a)# 05/31/95# 5/31/94# 5/31/93#
Operating performance:
Net asset value, beginning of period $ 11.75 $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.07 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on investments 1.80 (0.20) 1.44 0.21
Net increase/(decrease) in net asset value from
operations 1.87 (0.06) 1.53 0.30
Distributions:
Dividends from net investment income (0.06) (0.03) (0.05) (0.08)
Distributions in excess of net investment income (0.04) -- -- --
Distributions from net realized capital gains (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized capital gains -- (0.10) -- --
Total dividends and distributions (0.12) (0.25) (0.07) (0.10)
Net asset value, end of period $ 13.50 $ 11.75 $ 12.06 $ 10.60
Total return++ 16.01% (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 849,731 $ 572,940 $ 401,559 $ 118,873
Ratio of operating expenses to average net assets 1.17%+ 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to average net
assets 0.65%+ 1.17% 0.75% 1.03%
Portfolio turnover rate 26% 92% 39% 41%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.18%+ 1.04% 1.18% 1.32%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.07 $ 0.14 $ 0.08 $ 0.10
Average commission rate paid (b) $ 0.0272 -- -- --
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 5/31/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.08
Net realized and unrealized gain/(loss) on investments 0.36
Net increase/(decrease) in net asset value from
operations 0.44
Distributions:
Dividends from net investment income (0.04)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions (0.04)
Net asset value, end of period $ 10.40
Total return++ 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 83,970
Ratio of operating expenses to average net assets 1.33%+
Ratio of net investment income/(loss) to average net
assets 1.81%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.43%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.03
Average commission rate paid (b) --
</TABLE>
* Nations International Equity Fund Primary A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
17
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING MARKETS FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
<S> <C>
PRIMARY A SHARES 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 0.37
Net increase in net asset value from operations 0.34
Distributions:
Dividends from net investment income --
Distributions in excess of net investment income 0.00**
Distributions from net realized capital gains --
Total dividends and distributions 0.00**
Net asset value, end of period $ 10.34
Total return++ 3.42%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 47,560
Ratio of operating expenses to average net assets 2.13%+
Ratio of net investment income to average net assets (0.38)%+
Portfolio turnover rate 17%
Average commission rate paid (a) $ 0.0004
</TABLE>
* Nations Emerging Markets Fund Primary A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
NATIONS PACIFIC GROWTH FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
<S> <C>
PRIMARY A SHARES 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.02)
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operations 0.27
Distributions:
Dividends from net investment income --
Distributions in excess of net investment income (0.03)
Total dividends and distributions (0.03)
Net asset value, end of period $ 10.24
Total return++ 2.66%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 95,210
Ratio of operating expenses to average net assets 1.76%+
Ratio of net investment income/(loss) to average net assets (0.27)%+
Portfolio turnover rate 23%
Average commission rate paid (b) $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Primary A Shares commenced operations on June 30,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
18
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 14.24 $ 11.23 $ 11.08 $ 10.68
Net investment income/(loss) 0.02 0.09 0.09 0.09
Net realized and unrealized gain on investments 0.38 3.28 0.14 0.42
Net increase in net asset value from operations 0.40 3.37 0.23 0.51
Distributions:
Dividends from net investment income (0.02) (0.10) (0.08) (0.10)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (1.21) (0.36) (0.08) (0.11)
Net asset value, end of period $ 13.43 $ 14.24 $ 11.23 $ 11.08
Total return++ 3.14% 30.96% 2.14% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 839,300 $ 867,361 $ 717,914 $ 646,661
Ratio of operating expenses to average net assets 0.96%+ 0.98% 0.90% 0.80%
Ratio of net investment income/(loss) to average net
assets 0.38%+ 0.71% 0.85% 0.84%
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.96%+ 0.98% 0.91% 0.89%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.02 $ 0.09 $ 0.09 $ 0.08
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.02
Net realized and unrealized gain on investments 0.66#
Net increase in net asset value from operations 0.68
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.68
Total return++ 6.80%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 728,629
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income/(loss) to average net
assets 1.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.05%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.01
Average commission rate paid (c) N/A
</TABLE>
* Nations Capital Growth Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
19
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96#(a) 11/30/95 11/30/94#
Operating performance:
Net asset value, beginning of period $ 14.28 $ 11.41 $ 10.87
Net investment income/(loss) (0.00)(b) 0.01 (0.03)
Net realized and unrealized gain on investments 1.26 3.26 0.71
Net increase in net asset value from operations 1.26 3.27 0.68
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14)
Total dividends and distributions (1.50) (0.40) (0.14)
Net asset value, end of period $ 14.04 $ 14.28 $ 11.41
Total return++ 9.87% 29.95% 6.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 295,764 $ 269,484 $ 182,459
Ratio of operating expenses to average net assets 0.99%+ 0.98% 1.01%
Ratio of net investment income/(loss) to average net assets (0.06)%+ 0.08% (0.29)%
Portfolio turnover rate 39% 139% 129%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.99%+ 0.98% 1.01%
Net investment income/(loss) per share without waivers and/or expense
reimbursements (0.00)(b) $ 0.01 $ (0.03)
Average commission rate paid (c) $ 0.0599 N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.01)
Net realized and unrealized gain on investments 0.89
Net increase in net asset value from operations 0.88
Distributions:
Distributions from net realized capital gains (0.01)
Total dividends and distributions (0.01)
Net asset value, end of period $ 10.87
Total return++ 8.81%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 121,281
Ratio of operating expenses to average net assets 0.80%+
Ratio of net investment income/(loss) to average net assets (0.15)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.01%+
Net investment income/(loss) per share without waivers and/or expense
reimbursements $ (0.03)
Average commission rate paid (c) N/A
</TABLE>
* Nations Emerging Growth Fund Primary A Shares commenced operations on
December 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
20
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94* 04/29/94*
Operating performance:
Net asset value, beginning of period $ 17.06 $ 13.08 $ 13.31 $ 13.65
Net investment income/(loss) 0.05 0.10 0.01 (0.05)
Net realized and unrealized gain/(loss) on investments 0.35 3.96 (0.23)# 2.66
Net increase/(decrease) in net asset value from
operations 0.40 4.06 (0.22) 2.61
Distributions:
Dividends from net investment income (0.04) (0.08) (0.01) --
Distributions from net realized capital gains (0.23) -- -- (2.95)
Return of capital -- -- (0.00)(b) --
Total dividends and distributions (0.27) (0.08) (0.01) (2.95)
Net asset value, end of period $ 17.19 $ 17.06 $ 13.08 $ 13.31
Total return++ 2.44% 31.13% (1.62)% 18.79%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 116,469 $ 109,939 $ 9,947 $ 8,079
Ratio of operating expenses to average net assets 1.02%+ 1.30% 1.13%+ 1.20%+
Ratio of net investment income/(loss) to average net
assets 0.82%+ 0.85% 0.12%+ (0.60)%+
Portfolio turnover rate 47% 124% 177% 475%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.02%+ 1.30% 1.56%+ 1.53%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.05 $ 0.10 $ (0.03) $ (0.08)
Average commission rate paid (c) 0.0627 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 04/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain/(loss) on investments 3.74
Net increase/(decrease) in net asset value from
operations 3.71
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains (0.06)
Return of capital --
Total dividends and distributions (0.06)
Net asset value, end of period $ 13.65
Total return++ 37.13%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,638
Ratio of operating expenses to average net assets 1.20%+
Ratio of net investment income/(loss) to average net
assets (0.58)%+
Portfolio turnover rate 203%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.31%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.03)
Average commission rate paid (c) N/A
</TABLE>
* The period for Nations Disciplined Equity Fund Primary A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class A Shares, which were reorganized into Primary A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class A Shares commenced operations on October 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Value represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
21
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INDEX FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of period $ 12.91 $ 9.84
Net investment income 0.08 0.28
Net realized and unrealized gain/(loss) on investments 0.86 3.20
Net increase in net asset value from operations 0.94 3.48
Distributions:
Dividends from net investment income (0.13) (0.28)
Distributions from net realized capital gains (0.14) (0.13)
Total dividends and distributions (0.27) (0.41)
Net asset value, end of period $ 13.58 $ 12.91
Total return++ 7.33% 36.35%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 192,388 $ 145,021
Ratio of operating expenses to average net assets 0.35%+ 0.37%
Ratio of operating expenses to average net assets including interest expense 0.35%+ 0.38%
Ratio of net investment income to average net assets 1.99%+ 2.44%
Portfolio turnover rate 2% 18%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.73%+ 0.78%
Net investment income per share without waivers and/or expense reimbursements $ 0.07 $ 0.23
Average commission rate paid (b) $ 0.0291 N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.24
Net realized and unrealized gain/(loss) on investments (0.21)
Net increase in net asset value from operations 0.03
Distributions:
Dividends from net investment income (0.19)
Distributions from net realized capital gains --
Total dividends and distributions (0.19)
Net asset value, end of period $ 9.84
Total return++ 0.29%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 123,147
Ratio of operating expenses to average net assets 0.35%+
Ratio of operating expenses to average net assets including interest expense --
Ratio of net investment income to average net assets 2.64%+
Portfolio turnover rate 14%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.79%+
Net investment income per share without waivers and/or expense reimbursements $ 0.20
Average commission rate paid (b) N/A
</TABLE>
* Nations Equity Index Fund Primary A Shares commenced operations on December
15, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 12.68 $ 10.44 $ 10.87 $ 10.24
Net investment income 0.11 0.38 0.25 0.29
Net realized and unrealized gain/(loss) on investments 0.45 2.21 (0.43) 0.64
Net increase/(decrease) in net asset value from
operations 0.56 2.59 (0.18) 0.93
Distributions:
Dividends from net investment income (0.18) (0.33) (0.25) (0.30)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.59) (0.35) (0.25) (0.30)
Net asset value, end of period $ 11.65 $ 12.68 $ 10.44 $ 10.87
Total return++ 4.90% 25.27% (1.73)% 9.22%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 164,215 $ 163,198 $ 162,215 $ 178,270
Ratio of operating expenses to average net assets 1.00%+ 0.99% 0.98 % 0.90%
Ratio of net investment income to average net assets 2.91%+ 3.25% 2.31 % 2.82%
Portfolio turnover rate 83% 174% 156 % 50%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.00%+ 0.99% 0.99 % 0.97%
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.38 $ 0.25 $ 0.29
Average commission rate paid (c) $ 0.0598 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments 0.18#
Net increase/(decrease) in net asset value from
operations 0.24
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 111,953
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 3.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.05%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.05
Average commission rate paid (c) N/A
</TABLE>
* Nations Balanced Assets Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of
the portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
22
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b)# 11/30/95# 11/30/94 11/30/93 11/30/92
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.07 0.24 0.23 0.23 0.28
Net realized and unrealized gain/(loss) on
investments (0.07) 0.21 (0.33) 0.14 (0.01)
Net increase/(decrease) in net asset value
from operations 0.00 0.45 (0.10) 0.37 0.27
Distributions:
Dividends from net investment income (0.07) (0.24) (0.23) (0.23) (0.28)
Distributions in excess of net investment
income (0.00)(a) (0.00)(a) (0.00)(a) -- --
Distributions from net realized capital
gains -- -- (0.02) (0.02) --
Total dividends and distributions (0.07) (0.24) (0.25) (0.25) (0.28)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ 0.07% 11.70% (2.23)% 9.03% 6.70%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 399,915 $ 425,200 $ 433,278 $ 443,426 $ 360,497
Ratio of operating expenses to average net
assets 0.63%+ 0.60% 0.59% 0.55% 0.37%
Ratio of net investment income to average
net assets 5.32%+ 5.88% 5.76% 5.40% 6.48%
Portfolio turnover rate 189% 328% 133% 92% 25%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.86%+ 0.80% 0.80% 0.79% 0.77%
Net investment income per share without
waivers and/or expense reimbursements $ 0.06 $ 0.23 $ 0.22 $ 0.22 $ 0.26
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/91*
Operating performance:
Net asset value, beginning of period $ 4.00##
Net investment income 0.10
Net realized and unrealized gain/(loss) on
investments 0.17
Net increase/(decrease) in net asset value
from operations 0.27
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment
income --
Distributions from net realized capital
gains --
Total dividends and distributions (0.10)
Net asset value, end of period $ 4.17
Total return++ 6.81%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 158,435
Ratio of operating expenses to average net
assets 0.08%+
Ratio of net investment income to average
net assets 7.21%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.82%+
Net investment income per share without
waivers and/or expense reimbursements $ 0.00 (a)
</TABLE>
* Nations Short-Intermediate Government Fund Primary A Shares commenced
operations on August 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
## Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25, 1991,
the net asset value doubled as a result of the reclassification of each
outstanding share into half as many shares (reverse split).
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
23
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b)# 05/31/95# 05/31/94 05/31/93
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.36
Net investment income 0.52 0.64 0.64 0.71
Net realized and unrealized gain/(loss) on
investments (0.19) 0.06 (0.61) 0.13
Net increase/(decrease) in net asset value from
operations 0.33 0.70 0.03 0.84
Distributions:
Dividends from net investment income (0.50) (0.60) (0.58) (0.70)
Dividends in excess of net investment income 0.02 -- (0.02) --
Distributions from net realized capital gains -- -- -- --
Distributions in excess of net realized capital
gains -- -- (0.05) (0.04)
Distributions from capital -- (0.04) (0.04) --
Total dividends and distributions (0.52) (0.64) (0.69) (0.74)
Net asset value, end of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Total return++ 3.41% 7.55% 0.06% 8.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 55,962 $ 39,909 $ 44,536 $ 40,472
Ratio of operating expenses to average net assets 0.80%+ 0.76% 0.73% 0.85%
Ratio of net investment income to average net
assets 6.36%+ 6.69% 6.08% 6.67%
Portfolio turnover rate 199% 413% 56% 103%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.95%+ 0.94% 0.94% 1.00%
Net investment income per share without waivers
and/or expense reimbursements $ 0.51 $ 0.62 $ 0.61 $ 0.60
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 05/31/92 05/31/91*
Operating performance:
Net asset value, beginning of period $ 10.05 $ 10.00
Net investment income 0.74 0.10
Net realized and unrealized gain/(loss) on
investments 0.37 0.02
Net increase/(decrease) in net asset value from
operations 1.11 0.12
Distributions:
Dividends from net investment income (0.77) (0.07)
Dividends in excess of net investment income -- --
Distributions from net realized capital gains -- --
Distributions in excess of net realized capital
gains (0.03) --
Distributions from capital -- --
Total dividends and distributions (0.80) (0.07)
Net asset value, end of period $ 10.36 $ 10.05
Total return++ 11.43%+++ 1.19%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 42,256 $ 10,047
Ratio of operating expenses to average net assets 1.06% 1.10%+
Ratio of net investment income to average net
assets 7.15% 7.18%+
Portfolio turnover rate 130% 5%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.72% 1.69%+++
Net investment income per share without waivers
and/or expense reimbursements $ 0.07 $ 0.09+++
</TABLE>
* Nations Government Securities Fund Primary A Shares commenced operations on
April 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
24
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.20 0.61 0.50 0.53
Net realized and unrealized gain/(loss) on investments (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value from
operations 0.12 0.97 (0.01) 0.79
Distributions:
Dividends from net investment income (0.20) (0.61) (0.48) (0.53)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.20) (0.61) (0.52) (0.53)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.19% 10.48% (0.11)% 8.26 %
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 179,957 $ 169,291 $ 176,712 $ 201,738
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.50% 0.37%
Ratio of net investment income to average net assets 6.07%+ 6.32% 5.23% 5.27%
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.87%+ 0.86% 0.82% 0.79%
Net investment income per share without waivers and/or
expense reimbursements $ 0.19 $ 0.58 $ 0.47 $ 0.48
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.09
Net realized and unrealized gain/(loss) on investments (0.25)
Net increase/(decrease) in net asset value from
operations (0.16)
Distributions:
Dividends from net investment income (0.09)
Distributions in excess of net investment income --
Distributions from capital --
Total dividends and distributions (0.09)
Net asset value, end of period $ 9.75
Total return++ (1.58)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 190,680
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 5.54%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.90%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.08
</TABLE>
* Nations Short-Term Income Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
25
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED YEAR
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94# ENDED 11/30/93#
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 9.97
Net investment income 0.23 0.73 0.74 0.78
Net realized and unrealized gain/(loss) on investments (0.40) 1.15 (1.06) 0.91
Net increase/(decrease) in net asset value from
operations (0.17) 1.88 (0.32) 1.69
Distributions:
Dividends from net investment income (0.23) (0.73) (0.74) (0.78)
Distributions in excess of net investment income -- -- (0.00)(a) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.23) (0.73) (0.89) (0.78)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.59)% 20.11% (3.05 )% 17.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 65,081 $ 64,800 $ 22,298 $ 28,553
Ratio of operating expenses to average net assets 0.77%+ 0.80% 0.74% 0.55%
Ratio of net investment income to average net assets 6.49%+ 7.03% 7.31% 7.02%
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.87%+ 0.93% 0.95% 0.95%
Net investment income per share without waivers and/or
expense reimbursements $ 0.23 $ 0.72 $ 0.72 $ 0.70
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net asset value from
operations 0.03
Distributions:
Dividends from net investment income (0.06)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.06)
Net asset value, end of period $ 9.97
Total return++ 0.32%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23,962
Ratio of operating expenses to average net assets 0.25%+
Ratio of net investment income to average net assets 7.76%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.85%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.05
</TABLE>
* Nations Diversified Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.19 0.59 0.53 0.56
Net realized and unrealized gain/(loss) on investments (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value from operations (0.10) 1.49 (0.36) 1.18
Distributions:
Dividends from net investment income (0.19) (0.59) (0.51) (0.56)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.19) (0.59) (0.87) (0.57)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.04)% 16.45% (3.58)% 12.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 823,890 $ 823,098 $ 550,697 $ 545,538
Ratio of operating expenses to average net assets 0.72%+ 0.71% 0.68% 0.61%
Ratio of net investment income to average net assets 5.49% 6.05% 5.43% 5.40%
Portfolio turnover rate 1.33% 228% 307% 161%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.83%+ 0.81% 0.76% 0.77%
Net investment income per share without waivers and/or
expense reimbursements $ 0.19 $ 0.58 $ 0.52 $ 0.55
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net asset value from operations (0.01)
Distributions:
Dividends from net investment income (0.05)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.05)
Net asset value, end of period $ 9.94
Total return++ (0.11)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 581,329
Ratio of operating expenses to average net assets 0.26%+
Ratio of net investment income to average net assets 6.15%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.86%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.04
</TABLE>
* Nations Strategic Fixed Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year was
November 30.
26
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GLOBAL GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
PERIOD
ENDED
<S> <C>
PRIMARY A SHARES 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.39
Net realized and unrealized gain/(loss) on investments 0.11
Net increase in net asset value from operations 0.50
Distributions:
Dividends from net investment income (0.37)
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains (0.04)
Total dividends and distributions (0.43)
Net asset value, end of period $ 10.07
Total return++ 5.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,753
Ratio of operating expenses to average net assets 1.32%+
Ratio of net investment income/(loss) to average net assets 5.17%+
Portfolio turnover rate 213%
</TABLE>
* Nations Global Government Income Fund Primary A Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the
period, since the use of the undistributed income method did not accord with
the results of operations.
NATIONS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 11.08 $ 9.64 $ 11.33 $ 10.65
Net investment income 0.20 0.59 0.57 0.59
Net realized and unrealized gain/(loss) on
investments (0.24) 1.44 (1.44) 0.72
Net increase/(decrease) in net asset value
from operations (0.04) 2.03 (0.87) 1.31
Distributions:
Dividends from net investment income (0.20) (0.59) (0.57) (0.59)
Distributions in excess of net investment
income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.25) (0.04)
Total dividends and distributions (0.20) (0.59) (0.82) (0.63)
Net asset value, end of period $ 10.84 $ 11.08 $ 9.64 $ 11.33
Total return++ (0.41)% 21.55% (8.17)% 12.54%
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 68,022 $ 68,836 $ 59,279 $ 88,386
Ratio of operating expenses to average net
assets 0.60%+ 0.60% 0.61% 0.52%
Ratio of operating expenses to average net
asset including interest expense --(a) --(a) 0.62% --
Ratio of net investment income to average net
assets 5.35%+ 5.63% 5.42% 5.24%
Portfolio turnover rate 4% 49% 63% 48%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.91%+ 0.88% 0.90% 0.84%
Net investment income per share without
waivers and/or expense reimbursements $ 0.19 $ 0.56 $ 0.54 $ 0.55
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/92 11/30/91*
Operating performance:
Net asset value, beginning of period $ 10.25 $ 10.00
Net investment income 0.59 0.52
Net realized and unrealized gain/(loss) on
investments 0.41 0.25
Net increase/(decrease) in net asset value
from operations 1.00 0.77
Distributions:
Dividends from net investment income (0.59) (0.52)
Distributions in excess of net investment
income -- --
Distributions from net realized capital gains (0.01) --
Total dividends and distributions (0.60) (0.52)
Net asset value, end of period $ 10.65 $ 10.25
Total return++ 9.97%+++ 7.87%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 62,387 $ 23,631
Ratio of operating expenses to average net
assets 0.43% 0.20%+
Ratio of operating expenses to average net
asset including interest expense -- --
Ratio of net investment income to average net
assets 5.51% 6.07%+
Portfolio turnover rate 19% 54%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.90% 0.88%+
Net investment income per share without
waivers and/or expense reimbursements $ 0.54 $ 0.45
</TABLE>
* Nations Municipal Income Fund Primary A Shares commenced operations on
February 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
27
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.69 $ 9.96
Net investment income 0.15 0.44 0.38
Net realized and unrealized gain/(loss) on investments (0.05) 0.34 (0.27)
Net increase in net asset value from operations 0.10 0.78 0.11
Distributions:
Dividends from net investment income (0.15) (0.44) (0.38)
Distributions from net realized capital gains -- -- (0.00)#
Total dividends and distributions (0.15) (0.44) (0.38)
Net asset value, end of period $ 9.98 $ 10.03 $ 9.69
Total return++ 0.96% 8.16% 1.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 48,511 $ 49,961 $ 33,488
Ratio of operating expenses to average net assets 0.40%+(a) 0.45%(a) 0.34%(a)
Ratio of net investment income to average net assets 4.37%+ 4.38% 3.83%
Portfolio turnover rate 16% 82% 57%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.86%+ 0.93% 0.80%
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.39 $ 0.33
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.04)
Net increase in net asset value from operations 0.01
Distributions:
Dividends from net investment income (0.05)
Distributions from net realized capital gains --
Total dividends and distributions (0.05)
Net asset value, end of period $ 9.96
Total return++ 0.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,999
Ratio of operating expenses to average net assets 0.09%+
Ratio of net investment income to average net assets 3.16%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.04%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.04
</TABLE>
* Nations Short-Term Municipal Income Fund Primary A Shares commenced
operations on October 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.17 $ 9.24 $ 10.11
Net investment income 0.16 0.48 0.45
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.86)
Net increase/(decrease) in net asset value from operations 0.02 1.41 (0.41)
Distributions:
Dividends from net investment income (0.16) (0.48) (0.45)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.01)
Total dividends and distributions (0.16) (0.48) (0.46)
Net asset value, end of period $ 10.03 $ 10.17 $ 9.24
Total return++ 0.20% 15.60% (4.25)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 77,423 $ 73,897 $ 38,055
Ratio of operating expenses to average net assets 0.50%+(a) 0.45%(a) 0.35%(a)
Ratio of net investment income to average net assets 4.75%+ 4.91% 4.59%
Portfolio turnover rate 4% 31% 51%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.83%+ 0.84% 0.88%
Net investment income per share without waivers and/or expense
reimbursements $ 0.15 $ 0.45 $ 0.40
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.14
Net realized and unrealized gain/(loss) on investments 0.11
Net increase/(decrease) in net asset value from operations 0.25
Distributions:
Dividends from net investment income (0.14)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.14)
Net asset value, end of period $ 10.11
Total return++ 2.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 28,335
Ratio of operating expenses to average net assets 0.24%+
Ratio of net investment income to average net assets 4.07%+
Portfolio turnover rate 23%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.96%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12
</TABLE>
* Nations Intermediate Municipal Bond Fund Primary A Shares commenced
operations on July 30, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
28
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.63 $ 9.61 $ 10.50
Net investment income 0.17 0.48 0.45
Net realized and unrealized gain/(loss) on investments (0.17) 1.02 (0.88)
Net increase/(decrease) in net asset value from operations 0.00 1.50 (0.43)
Distributions:
Dividends from net investment income (0.17) (0.48) (0.45)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.01)
Total dividends and distributions (0.17) (0.48) (0.46)
Net asset value, end of period $ 10.46 $ 10.63 $ 9.61
Total return++ (0.06)% 15.92% (4.26)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 44,988 $ 44,038 $ 42,717
Ratio of operating expenses to average net assets 0.50%+(a) 0.55%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.66%+ 4.70% 4.44%
Portfolio turnover rate 18% 27% 34%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.86%+ 0.81% 0.76%
Net investment income per share without waivers and/or expense
reimbursements $ 0.15 $ 0.46 $ 0.43
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.44
Net realized and unrealized gain/(loss) on investments 0.50
Net increase/(decrease) in net asset value from operations 0.94
Distributions:
Dividends from net investment income (0.44)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.44)
Net asset value, end of period $ 10.50
Total return++ 9.50%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 41,489
Ratio of operating expenses to average net assets 0.44%+
Ratio of net investment income to average net assets 4.28%+
Portfolio turnover rate 15%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.80%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.40
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund Primary A Shares commenced
operations on December 11, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS FLORIDA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.76 $ 8.40
Net investment income 0.16 0.51
Net realized and unrealized gain/(loss) on investments (0.29) 1.36
Net increase/(decrease) in net asset value from operations (0.13) 1.87
Dividends from net investment income (0.16) (0.51)
Total dividends and distributions (0.16) (0.51)
Net asset value, end of period $ 9.47 $ 9.76
Total return++ (1.33)% 22.69%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,044 $ 11,219
Ratio of operating expenses to average net assets 0.60%+(a) 0.39%(a)
Ratio of net investment income to average net assets 5.03%+ 5.44%
Portfolio turnover rate 7% 13%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.96%+ 0.95%
Net investment income per share without waivers and/or expense reimbursements $ 0.15 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.93
Net investment income 0.49
Net realized and unrealized gain/(loss) on investments (1.53)
Net increase/(decrease) in net asset value from operations (1.04)
Dividends from net investment income (0.49)
Total dividends and distributions (0.49)
Net asset value, end of period $ 8.40
Total return++ (10.70)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,258
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.55%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.91%+
Net investment income per share without waivers and/or expense reimbursements $ 0.43
</TABLE>
* Nations Florida Municipal Bond Fund Primary A Shares commenced operations on
December 13, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
29
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.81 $ 9.82 $ 10.82 $ 10.29
Net investment income 0.17 0.50 0.49 0.50
Net realized and unrealized gain/(loss) on investments (0.18) 0.99 (0.98) 0.56
Net increase/(decrease) in net asset value from operations (0.01) 1.49 (0.49) 1.06
Distributions:
Dividends from net investment income (0.17) (0.50) (0.49) (0.50)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.02) (0.03)
Total dividends and distributions (0.17) (0.50) (0.51) (0.53)
Net asset value, end of period $ 10.63 $ 10.81 $ 9.82 $ 10.82
Total return++ (0.13)% 15.42% (4.70)% 10.43%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 38,222 $ 40,383 $ 33,111 $ 30,738
Ratio of operating expenses to average net assets 0.50%+ 0.55% 0.54% 0.46%
Ratio of operating expenses to average net assets including
interest expense --(a) --(a) 0.55% --
Ratio of net investment income to average net assets 4.67%+ 4.76% 4.74% 4.57%
Portfolio turnover rate 3% 17% 22% 6%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.83%+ 0.80% 0.75% 0.77%
Net investment income per share without waivers and/or
expense reimbursements $ 0.16 $ 0.47 $ 0.47 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.41
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operations 0.70
Distributions:
Dividends from net investment income (0.41)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.41)
Net asset value, end of period $ 10.29
Total return++ 7.07%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 20,584
Ratio of operating expenses to average net assets 0.20%+
Ratio of operating expenses to average net assets including
interest expense --
Ratio of net investment income to average net assets 5.25%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.77%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.37
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Primary A Shares commenced
operations on March 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS GEORGIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.72 $ 8.38
Net investment income 0.16 0.51
Net realized and unrealized gain/(loss) on investments (0.24) 1.34
Net increase/(decrease) in net asset value from operations (0.08) 1.85
Dividends from net investment income (0.16) (0.51)
Total dividends and distributions (0.16) (0.51)
Net asset value, end of period $ 9.48 $ 9.72
Total return++ (0.84)% 22.48%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,068 $ 2,628
Ratio of operating expenses to average net assets 0.60%+(a) 0.40%(a)
Ratio of net investment income to average net assets 4.96%+ 5.42%
Portfolio turnover rate 7% 26%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.14%+ 1.09%
Net investment income per share without waivers and/or expense reimbursements $ 0.14 $ 0.44
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.02
Net investment income 0.46
Net realized and unrealized gain/(loss) on investments (1.64)
Net increase/(decrease) in net asset value from operations (1.18)
Dividends from net investment income (0.46)
Total dividends and distributions (0.46)
Net asset value, end of period $ 8.38
Total return++ (12.07)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 232
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.60%+
Portfolio turnover rate 35%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.04%+
Net investment income per share without waivers and/or expense reimbursements $ 0.39
</TABLE>
* Nations Georgia Municipal Bond Fund Primary A Shares commenced operations on
January 13, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
30
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.95 $ 10.00 $ 11.09 $ 10.72
Net investment income 0.17 0.51 0.50 0.52
Net realized and unrealized gain/(loss) on
investments (0.15) 0.98 (0.99) 0.44
Net increase/(decrease) in net asset value from
operations 0.02 1.49 (0.49) 0.96
Distributions:
Dividends from net investment income (0.17) (0.51) (0.50) (0.52)
Distributions from net realized capital gains -- (0.03) (0.10) (0.07)
Distributions in excess of net realized capital
gains -- -- (0.00)# --
Total dividends and distributions (0.17) (0.54) (0.60) (0.59)
Net asset value, end of period $ 10.80 $ 10.95 $ 10.00 $ 11.09
Total return++ 0.16% 15.16% (4.64)% 9.11%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 61,337+ $ 62,460 $ 61,349 $ 61,552
Ratio of operating expenses to average net assets 0.50%+(a) 0.55%(a) 0.53%(a) 0.49%
Ratio of net investment income to average net
assets 4.62%+ 4.76% 4.73% 4.73%
Portfolio turnover rate 4% 11% 22% 26%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.81%+ 0.80% 0.73% 0.73%
Net investment income per share without waivers
and/or expense reimbursements $ 0.16 $ 0.48 $ 0.48 $ 0.49
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
PRIMARY A SHARES 11/30/92 11/30/91 11/30/90*
Operating performance:
Net asset value, beginning of period $ 10.44 $ 10.21 $ 10.00
Net investment income 0.55 0.60 0.16
Net realized and unrealized gain/(loss) on
investments 0.31 0.24 0.21
Net increase/(decrease) in net asset value from
operations 0.86 0.84 0.37
Distributions:
Dividends from net investment income (0.55) (0.60) (0.16)
Distributions from net realized capital gains (0.03) (0.01) --
Distributions in excess of net realized capital
gains -- -- --
Total dividends and distributions (0.58) (0.61) (0.16)
Net asset value, end of period $ 10.72 $ 10.44 $ 10.21
Total return++ 8.41%+++ 8.46%+++ 3.72%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 48,192 $ 31,088 $ 11,087
Ratio of operating expenses to average net assets 0.39% 0.20% 0.21%+
Ratio of net investment income to average net
assets 5.12% 5.76% 6.12%+
Portfolio turnover rate 38% 26% 49%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.78% 0.71% 0.84%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.51 $ 0.55 $ 0.13
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Primary A Shares commenced
operations on September 1, 1990.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS MARYLAND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.63 $ 8.37
Net investment income 0.15 0.48
Net realized and unrealized gain/(loss) on investments (0.24) 1.26
Net increase/(decrease) in net asset value from operations (0.09) 1.74
Dividends from net investment income (0.15) (0.48)
Total dividends and distributions (0.15) (0.48)
Net asset value, end of period $ 9.39 $ 9.63
Total return++ (0.95)% 21.23%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 2,788 $ 2,595
Ratio of operating expenses to average net assets 0.60%+ 0.40%
Ratio of net investment income to average net assets 4.72%+ 5.14%
Portfolio turnover rate 7% 11%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.23%+ 1.26%
Net investment income per share without waivers and/or expense reimbursements $ 0.13 $ 0.40
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 8.90
Net investment income 0.11
Net realized and unrealized gain/(loss) on investments (0.53)
Net increase/(decrease) in net asset value from operations (0.42)
Dividends from net investment income (0.11)
Total dividends and distributions (0.11)
Net asset value, end of period $ 8.37
Total return++ (4.89)%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 39
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.48%+
Portfolio turnover rate 39%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.30%+
Net investment income per share without waivers and/or expense reimbursements $ 0.09
</TABLE>
* Nations Maryland Municipal Bond Fund Primary A Shares commenced operations
on September 20, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
31
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.51 $ 9.53 $ 10.46
Net investment income 0.16 0.45 0.44
Net realized and unrealized gain/(loss) on investments (0.15) 0.99 (0.88)
Net increase/(decrease) in net asset value from operations 0.01 1.44 (0.44)
Distributions:
Dividends from net investment income (0.16) (0.45) (0.44)
Distributions in excess of net investment income -- (0.00)# --
Distributions from net realized capital gains -- (0.01) (0.05)
Total dividends and distributions (0.16) (0.46) (0.49)
Net asset value, end of period $ 10.36 $ 10.51 $ 9.53
Total return++ 0.05% 15.41% (4.34)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 21,161 $ 20,916 $ 14,148
Ratio of operating expenses to average net assets 0.50%+ 0.57%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.47%+ 4.47% 4.38%
Portfolio turnover rate 3% 57% 37%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.87%+ 0.84% 0.82%
Net investment income per share without waivers and/or expense
reimbursements $ 0.15 $ 0.43 $ 0.42
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.43
Net realized and unrealized gain/(loss) on investments 0.46
Net increase/(decrease) in net asset value from operations 0.89
Distributions:
Dividends from net investment income (0.43)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.43)
Net asset value, end of period $ 10.46
Total return++ 9.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 11,814
Ratio of operating expenses to average net assets 0.42%+
Ratio of net investment income to average net assets 4.23%+
Portfolio turnover rate 29%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.85%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.39
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Primary A Shares
commenced operations on December 11, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.73 $ 8.36
Net investment income 0.16 0.50
Net realized and unrealized gain/(loss) on investments (0.24) 1.37
Net increase/(decrease) in net asset value from operations (0.08) 1.87
Dividends from net investment income (0.16) (0.50)
Total dividends and distributions (0.16) (0.50)
Net asset value, end of period $ 9.49 $ 9.73
Total return++ (0.87)% 22.87%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,593 $ 1,293
Ratio of operating expenses to average net assets 0.60%+ 0.38%(a)
Ratio of net investment income to average net assets 4.86%+ 5.43%
Portfolio turnover rate 22% 40%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.99%+ 0.96%
Net investment income per share without waivers and/or expense reimbursements $ 0.15 $ 0.45
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.06
Net investment income 0.45
Net realized and unrealized gain/(loss) on investments (1.70)
Net increase/(decrease) in net asset value from operations (1.25)
Dividends from net investment income (0.45)
Total dividends and distributions (0.45)
Net asset value, end of period $ 8.36
Total return++ (12.65)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 531
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.53%+
Portfolio turnover rate 29%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.92%+
Net investment income per share without waivers and/or expense reimbursements $ 0.40
</TABLE>
* Nations North Carolina Municipal Bond Fund Primary A Shares commenced
operations on January 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
32
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.69 $ 9.76 $ 10.61 $ 10.18
Net investment income 0.17 0.51 0.50 0.50
Net realized and unrealized gain/(loss) on investments (0.17) 0.93 (0.84) 0.43
Net increase/(decrease) in net asset value from
operations 0.00 1.44 (0.34) 0.93
Distributions:
Dividends from net investment income (0.17) (0.51) (0.50) (0.50)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.17) (0.51) (0.51) (0.50)
Net asset value, end of period $ 10.52 $ 10.69 $ 9.76 $ 10.61
Total return++ 0.00%## 15.02% (3.37)% 9.32 %
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 41,817 $ 45,255 $ 49,030 $ 56,995
Ratio of operating expenses to average net assets 0.50%+(a) 0.55%(a) 0.54%(a) 0.45 %
Ratio of net investment income to average net assets 4.81%+ 4.92% 4.82% 4.68 %
Portfolio turnover rate 6% 11% 30% 11 %
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.82%+ 0.75% 0.75% 0.75 %
Net investment income per share without waivers and/or
expense reimbursements $ 0.16 $ 0.49 $ 0.48 $ 0.47
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.47
Net realized and unrealized gain/(loss) on investments 0.18
Net increase/(decrease) in net asset value from
operations 0.65
Distributions:
Dividends from net investment income (0.47)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.47)
Net asset value, end of period $ 10.18
Total return++ 6.62%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 39,535
Ratio of operating expenses to average net assets 0.20%+
Ratio of net investment income to average net assets 4.11%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.74%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.42
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Primary A Shares
commenced operations on January 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
## Amount represents less than 0.01%.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.99 $ 8.65
Net investment income 0.17 0.52
Net realized and unrealized gain/(loss) on investments (0.22) 1.34
Net increase/(decrease) in net asset value from operations (0.05) 1.86
Dividends from net investment income (0.17) (0.52)
Total dividends and distributions (0.17) (0.52)
Net asset value, end of period $ 9.77 $ 9.99
Total return++ (0.57)% 21.99%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,058 $ 1,782
Ratio of operating expenses to average net assets 0.60%+(a) 0.40%(a)
Ratio of net investment income to average net assets 4.96%+ 5.44%
Portfolio turnover rate 20% 13%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.13%+ 1.08%
Net investment income per share without waivers and/or expense reimbursements $ 0.15 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.02
Net investment income 0.48
Net realized and unrealized gain/(loss) on investments (1.37)
Net increase/(decrease) in net asset value from operations (0.89)
Dividends from net investment income (0.48)
Total dividends and distributions (0.48)
Net asset value, end of period $ 8.65
Total return++ (9.12 )%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 400
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of net investment income to average net assets 5.48%+
Portfolio turnover rate 14%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.12%+
Net investment income per share without waivers and/or expense reimbursements $ 0.41
</TABLE>
* Nations South Carolina Municipal Bond Fund Primary A Shares commenced
operations on December 27, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
33
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.23 $ 9.30 $ 10.18
Net investment income 0.15 0.46 0.45
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.87)
Net increase/(decrease) in net asset value from operations 0.01 1.39 (0.42)
Distributions:
Dividends from net investment income (0.15) (0.46) (0.45)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.01)
Total dividends and distributions (0.15) (0.46) (0.46)
Net asset value, end of period $ 10.09 $ 10.23 $ 9.30
Total return++ 0.12% 15.22% (4.24)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,408 $ 7,160 $ 4,116
Ratio of operating expenses to average net assets 0.50%+ 0.57% 0.52%
Ratio of operating expenses to average net assets including interest
expense -- -- (a) 0.53%
Ratio of net investment income to average net assets 4.51%+ 4.65% 4.56%
Portfolio turnover rate 3% 34% 41%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.02%+ 0.92% 0.89%
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.43 $ 0.41
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.06
Net investment income 0.29
Net realized and unrealized gain/(loss) on investments 0.12
Net increase/(decrease) in net asset value from operations 0.41
Distributions:
Dividends from net investment income (0.29)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.29)
Net asset value, end of period $ 10.18
Total return++ 4.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,123
Ratio of operating expenses to average net assets 0.27%+
Ratio of operating expenses to average net assets including interest
expense --
Ratio of net investment income to average net assets 4.31%+
Portfolio turnover rate 16%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.94%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.24
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund Primary A Shares commenced
operations on April 13, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.87 $ 8.58
Net investment income 0.16 0.52
Net realized and unrealized gain/(loss) on investments (0.19) 1.29
Net increase/(decrease) in net asset value from operations (0.03) 1.81
Dividends from net investment income (0.16) (0.52)
Total dividends and distributions (0.16) (0.52)
Net asset value, end of period $ 9.68 $ 9.87
Total return++ (0.30)% 21.52%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 975 $ 768
Ratio of operating expenses to average net assets 0.60%+ 0.40%(a)
Ratio of operating expenses to average net assets including interest expense 0.61%+ --
Ratio of net investment income to average net assets 4.92%+ 5.49%
Portfolio turnover rate 2% 45%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.47%+ 1.27%
Net investment income per share without waivers and/or expense reimbursements $ 0.13 $ 0.44
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.59
Net investment income 0.39
Net realized and unrealized gain/(loss) on investments (1.01)
Net increase/(decrease) in net asset value from operations (0.62)
Dividends from net investment income (0.39)
Total dividends and distributions (0.39)
Net asset value, end of period $ 8.58
Total return++ (6.66)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 311
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of operating expenses to average net assets including interest expense --
Ratio of net investment income to average net assets 5.56%+
Portfolio turnover rate 38%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.20%+
Net investment income per share without waivers and/or expense reimbursements $ 0.32
</TABLE>
* Nations Tennessee Municipal Bond Fund Primary A Shares commenced operations
on March 2, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
34
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 10.36 $ 9.53 $ 10.35
Net investment income 0.16 0.46 0.44
Net realized and unrealized gain/(loss) on investments (0.15) 0.83 (0.79)
Net increase/(decrease) in net asset value from operations 0.01 1.29 (0.35)
Distributions:
Dividends from net investment income (0.16) (0.46) (0.44)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.03)
Total dividends and distributions (0.16) (0.46) (0.47)
Net asset value, end of period $ 10.21 $ 10.36 $ 9.53
Total return++ 0.05% 13.83% (3.48)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 27,176 $ 26,382 $ 24,066
Ratio of operating expenses to average net assets 0.50%+ 0.57%(a) 0.55%(a)
Ratio of net investment income to average net assets 4.52%+ 4.62% 4.40%
Portfolio turnover rate 11% 64% 61%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.89% 0.83% 0.78%
Net investment income per share without waivers and/or expense
reimbursements $ 0.15 $ 0.44 $ 0.42
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.41
Net realized and unrealized gain/(loss) on investments 0.35
Net increase/(decrease) in net asset value from operations 0.76
Distributions:
Dividends from net investment income (0.41)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.41)
Net asset value, end of period $ 10.35
Total return++ 7.72%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 31,875
Ratio of operating expenses to average net assets 0.44%+
Ratio of net investment income to average net assets 4.43%+
Portfolio turnover rate 63%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.82%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.38
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund Primary A Shares commenced
operations on January 12, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.70 $ 8.39
Net investment income 0.16 0.50
Net realized and unrealized gain/(loss) on investments (0.21) 1.31
Net increase/(decrease) in net asset value from operations (0.05) 1.81
Dividends from net investment income (0.16) (0.50)
Total dividends and distributions (0.16) (0.50)
Net asset value, end of period $ 9.49 $ 9.70
Total return++ (0.55)% 22.09%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,138 $ 4,613
Ratio of operating expenses to average net assets 0.60%+ 0.39%(a)
Ratio of net investment income to average net assets 4.92%+ 5.45%
Portfolio turnover rate 6% 50%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.11%+ 1.05%
Net investment income per share without waivers and/or expense reimbursements $ 0.14 $ 0.44
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.01
Net investment income 0.42
Net realized and unrealized gain/(loss) on investments (1.62)
Net increase/(decrease) in net asset value from operations (1.20)
Dividends from net investment income (0.42)
Total dividends and distributions (0.42)
Net asset value, end of period $ 8.39
Total return++ (12.21)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,285
Ratio of operating expenses to average net assets 0.22%+(a)
Ratio of net investment income to average net assets 5.52%+
Portfolio turnover rate 107%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.06%+
Net investment income per share without waivers and/or expense reimbursements $ 0.35
</TABLE>
* Nations Texas Municipal Bond Fund Primary A Shares commenced operations on
February 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
35
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
Operating performance:
Net asset value, beginning
of period $ 10.83 $ 9.94 $ 10.99 $ 10.59 $ 10.34 $ 10.14
Net investment income 0.17 0.51 0.50 0.48 0.54 0.58
Net realized and unrealized
gain/(loss) on
investments (0.14) 0.89 (0.96) 0.42 0.29 0.21
Net increase/(decrease) in
net asset value from
operations 0.03 1.40 (0.46) 0.90 0.83 0.79
Distributions:
Dividends from net
investment income (0.17) (0.51) (0.50) (0.48) (0.54) (0.58)
Distributions from net
realized capital gains -- (0.00)# (0.09) (0.02) (0.04) (0.01)
Distributions in excess of
net realized capital
gains -- -- (0.00)# -- -- --
Total dividends and
distributions (0.17) (0.51) (0.59) (0.50) (0.58) (0.59)
Net asset value, end of
period $ 10.69 10.83 $ 9.94 $ 10.99 $ 10.59 $ 10.34
Total return++ 0.27% 14.39% (4.35)% 9.08% 8.28%+++ 8.04%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $ 155,464 $ 157,252 $ 167,405 $ 193,084 $ 157,773 $ 119,757
Ratio of operating expenses
to average net assets 0.50%+(a) 0.56%(a) 0.61%(a) 0.57% 0.56% 0.45%
Ratio of net investment
income to average net
assets 4.72%+ 4.87% 4.76% 4.80% 5.17% 5.67%
Portfolio turnover rate 2% 22% 14% 26% 13% 24%
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 0.76%+ 0.74% 0.73% 0.69% 0.68% 0.73%
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.16 $ 0.49 $ 0.49 $ 0.47 $ 0.53 $ 0.55
<CAPTION>
YEAR PERIOD
ENDED ENDED
PRIMARY A SHARES 11/30/90 11/30/89*
Operating performance:
Net asset value, beginning
of period $ 10.08 $ 10.00
Net investment income 0.61 0.12
Net realized and unrealized
gain/(loss) on
investments 0.11 0.03
Net increase/(decrease) in
net asset value from
operations 0.72 0.15
Distributions:
Dividends from net
investment income (0.66) (0.07)
Distributions from net
realized capital gains -- --
Distributions in excess of
net realized capital
gains -- --
Total dividends and
distributions (0.66) (0.07)
Net asset value, end of
period $ 10.14 $ 10.08
Total return++ 7.41%+++ 1.46%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period
(in 000's) $ 75,962 $ 46,560
Ratio of operating expenses
to average net assets 0.26% 0.16%+
Ratio of net investment
income to average net
assets 6.09% 6.09%+
Portfolio turnover rate 19% 12%
Ratio of operating expenses
to average net assets
without waivers and/or
expense reimbursements 0.80% 0.81%+
Net investment income per
share without waivers
and/or expense
reimbursements $ 0.55 $ 0.08
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Primary A Shares commenced
operations on September 20, 1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
36
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY A SHARES 03/31/96(b) 11/30/95
Operating performance:
Net asset value, beginning of period $ 9.62 $ 8.29
Net investment income 0.16 0.51
Net realized and unrealized gain/(loss) on investments (0.24) 1.33
Net increase/(decrease) in net asset value from operations (0.08) 1.84
Dividends from net investment income (0.16) (0.51)
Total dividends and distributions (0.16) (0.51)
Net asset value, end of period $ 9.38 $ 9.62
Total return++ (0.84)% 22.63%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,296 $ 3,527
Ratio of operating expenses to average net assets 0.60%+ 0.39%(a)
Ratio of operating expenses to average net assets including interest expense 0.61%+ --
Ratio of net investment income to average net assets 5.06%+ 5.51%
Portfolio turnover rate 8% 16%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.07%+ 1.04%
Net investment income per share without waivers and/or expense reimbursements $ 0.14 $ 0.46
<CAPTION>
PERIOD
ENDED
PRIMARY A SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.45
Net realized and unrealized gain/(loss) on investments (1.71)
Net increase/(decrease) in net asset value from operations (1.26)
Dividends from net investment income (0.45)
Total dividends and distributions (0.45)
Net asset value, end of period $ 8.29
Total return++ (12.86)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 432
Ratio of operating expenses to average net assets 0.21%+(a)
Ratio of operating expenses to average net assets including interest expense --
Ratio of net investment income to average net assets 5.52%+
Portfolio turnover rate 61%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.99%+
Net investment income per share without waivers and/or expense reimbursements $ 0.38
</TABLE>
* Nations Virginia Municipal Bond Fund Primary A Shares commenced operations on
January 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
MONEY MARKET FUNDS:
Each Money Market Fund described below endeavors to achieve its investment
objective by investing in a diversified portfolio of high quality money market
instruments with maturities of 397 days or less from the date of purchase.
Securities subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
EQUITY FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
37
<PAGE>
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
NATIONS EQUITY INDEX FUND: Nations Equity Index Fund's investment objective is
to seek investment results that correspond, before fees and expenses, to the
total return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index" or the "Index").(1) The Fund is not managed according to traditional
methods of "active" investment management, which involve the buying and selling
of securities based upon economic, financial, and market analyses and investment
judgment. Instead, the Fund, utilizing a "passive" or "indexing" investment
approach, attempts to duplicate the performance of the S&P 500 Index.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing primarily in
investment grade fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
NATIONS MUNICIPAL INCOME FUND: The investment objective of Nations Municipal
Income Fund is to seek current income exempt from Federal income tax, consistent
with prudent investment risk.
NATIONS SHORT-TERM MUNICIPAL INCOME FUND: The investment objective of Nations
Short-Term Municipal Income Fund is to seek current income exempt from Federal
income tax consistent with minimal fluctuation of principal.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Nations Intermediate Municipal Bond
Fund's investment objective is to seek current income exempt from Federal income
tax, consistent with moderate fluctuation of principal.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal income tax and the Florida state intangibles tax consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS FLORIDA MUNICIPAL BOND FUND: Nations Florida Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax
and the Florida state intangibles tax, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Georgia Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Georgia state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
38
<PAGE>
NATIONS GEORGIA MUNICIPAL BOND FUND: Nations Georgia Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Georgia
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Maryland state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
NATIONS MARYLAND MUNICIPAL BOND FUND: Nations Maryland Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Maryland
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND: Nations North Carolina Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
and North Carolina state income taxes, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND: Nations South Carolina Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
and South Carolina state income taxes, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade municipal securities.
NATIONS TENNESSEE MUNICIPAL BOND FUND: Nations Tennessee Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax
and the Tennessee Hall Income Tax on unearned income consistent with prudent
investment risk by investing primarily in long-term, investment grade municipal
securities.
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal income tax consistent with moderate fluctuation of principal by
investing primarily in intermediate-term, investment grade municipal securities.
NATIONS TEXAS MUNICIPAL BOND FUND: Nations Texas Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax,
consistent with prudent investment risk, by investing primarily in long-term,
investment grade municipal securities.
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Virginia state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
NATIONS VIRGINIA MUNICIPAL BOND FUND: Nations Virginia Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Virginia
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund and Nations Virginia
Intermediate Municipal Bond Fund, sometimes collectively referred to as the
"State Intermediate Municipal Bond Funds," and Nations Florida Municipal Bond
Fund, Nations Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations North Carolina Municipal Bond Fund, Nations South Carolina Municipal
Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas Municipal Bond
Fund and Nations Virginia Municipal Bond Fund, sometimes collectively referred
to as the "State Municipal Bond Funds".
39
<PAGE>
How Objectives Are Pursued
MONEY MARKET FUNDS:
NATIONS PRIME FUND: In pursuing its investment objective, 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") and other obligations issued
or guaranteed as to payment of principal and interest by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Obligations"). Some U.S.
Government Obligations are backed by the full faith and credit of the U.S.
Treasury, such as direct pass-through certificates of the Government National
Mortgage Association ("GNMA"). Some are supported by the right of the issuer to
borrow from the U.S. Government, such as obligations of Federal Home Loan Banks,
and some are backed only by the credit of the issuer itself, such as obligations
of the Federal National Mortgage Association ("FNMA"). U.S. Government
Obligations also include U.S. Treasury Obligations, which differ only in their
interest rates, maturities and times of issuance. The Fund also may invest in
bank and commercial instruments that may be available in the money markets, high
quality short-term taxable obligations issued by state and local governments,
their agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified first tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and 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 or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in obligations the
principal and interest of which are backed by the full faith and credit of the
United States Government, provided that such Fund shall, under normal market
conditions, invest at least 65% of its total assets in U.S. Treasury bills,
notes and bonds and other instruments issued directly by the U.S. Government.
The Fund also may lend its portfolio securities to qualified institutional
investors. For more information concerning these instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For more information
concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories, and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the issuer or bond counsel, is
exempt from regular Federal income tax ("Municipal Securities"). The Fund will
not knowingly purchase securities the interest on which is subject to such tax.
A portion of the Fund's assets, however, may be invested in private activity
bonds, the interest on which may be treated as a specific tax preference item
under the Federal alternative minimum tax. See "How Dividends And Distributions
Are Made; Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "A" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"), Thomson
BankWatch, Inc. ("BankWatch"), or Moody's Investors Service, Inc. ("Moody's"),
in the case of bonds; rated "D-1" or higher by D&P, "F-1" or higher by Fitch,
"SP-1" by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher
by D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of
variable-rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by
Fitch, "A-1" or higher by S&P or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by Nations
Fund Trust's Board of Trustees. The applicable Municipal Securities ratings are
described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
40
<PAGE>
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. For more information concerning the Fund's investments, see "Appendix
A."
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability, and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower
price-to-earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. The Adviser will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks.
The Fund invests under normal market conditions at least 65% of its total assets
in common stocks. In addition to common stocks, the Fund also may invest in
preferred stocks, securities convertible into common stock and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in U.S. Government Obligations, and
investment grade securities of domestic companies. Obligations with the lowest
investment grade rating (E.G. rated "BBB" by S&P or "Baa" by Moody's) have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
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.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
41
<PAGE>
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (I.E., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed-income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories (E.G., rated "BBB" by
S&P) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (E.G. rated "BB" by S&P) or if not rated,
are of equivalent investment quality as determined by the Adviser.
Non-investment-grade debt securities are sometimes referred to as "high yield
bonds" or "junk bonds," tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest up to 20%
of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies in the Far
East and Western Europe as well as Australia, Canada, and other areas (including
developing countries). Under unusual circumstances, however, the Fund may invest
substantially all of its assets in companies in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that the
Adviser believes have potential for growth of capital. The Fund may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers and securities of foreign investment
funds or trusts. For additional information concerning the Fund's investment
practices, see "Appendix A."
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
equity securities of companies in emerging markets.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. The Adviser seeks to identify and invest in those
emerging markets that have a relatively low gross national product per capita,
compared to the world's major economies, and which exhibit potential for rapid
economic growth. The Adviser believes that investment in equity securities of
emerging market issuers offers significant potential for long-term capital
appreciation.
Emerging markets include, but are not limited to: Argentina, Brazil, Chile,
China, Czech Republic, Colombia, Ecuador, Greece, Hong Kong, Indonesia, India,
Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia, Singapore,
South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least
42
<PAGE>
50% of its assets situated in such country, market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's or S&P or, if unrated, determined by
the Adviser to be comparable in quality to instruments so rated. Obligations
with the lowest investment grade rating (E.G., rated "Baa" by Moody's or "BBB"
by S&P) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. When allocating investments among individual countries, the
Adviser will consider various criteria, such as the relative economic growth
potential of the various economies and securities markets, expected levels of
inflation, government policies influencing business conditions and the outlook
for currency relationships.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. The Pacific Basin and Far
East include Australia, Hong Kong, India, Indonesia, South Korea, Malaysia, New
Zealand, Pakistan, the People's Republic of China, the Philippines, Singapore,
Sri Lanka, Taiwan and Thailand and may include other markets that develop in the
region. The Fund will not invest in securities of issuers in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. When allocating investments among individual countries, the
Adviser will consider various criteria, such as the relative economic growth
potential of the various economies and securities markets, expected levels of
inflation, government policies influencing business conditions and the outlook
for currency relationships. The Fund may invest in ADRs, GDRs, EDRs and ADSs.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial
mar-
43
<PAGE>
kets or in U.S. dollar-denominated instruments. See "Appendix A" below for
additional information concerning the investment practices of the Fund.
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
types of companies:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Through intensive research, visits to many companies each year and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursu-
44
<PAGE>
ing this investment philosophy, the Fund seeks to provide investors with
long-term capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by an NRSRO or, if not rated, are of
equivalent quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments and
money market instruments.
NATIONS EQUITY INDEX FUND: Under normal conditions, the Fund will invest at
least 80% of its assets in equity securities of companies which compose the S&P
500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and its
current price. In seeking to duplicate the performance of the S&P 500 Index, the
Adviser will attempt to allocate the Fund's portfolio among common stocks in
approximately the same weightings as the S&P 500 Index, beginning with the
heaviest weighted stocks that make up a larger portion of the Index's value.
The Adviser generally will seek to match the composition of the S&P 500 Index as
closely as possible, but may not always invest the Fund's portfolio to mirror
the Index exactly. Because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 Index stocks and may at times have its portfolio
weighted differently from the S&P 500 Index. The Fund may omit or remove an S&P
500 Index stock from its portfolio if, following objective criteria, the Adviser
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. The Adviser may purchase stocks that are not included in the S&P 500
Index to compensate for these differences if it believes that their prices will
move together with the prices of S&P 500 Index stocks omitted from the
portfolio.
The correlation between the performance of Nations Equity Index Fund and the S&P
500 Index is expected to be over 0.95 on an annual basis. A correlation of 1.00
would indicate perfect correlation, which would be achieved when the net asset
value of the Fund, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
500 Index. The Fund's ability to track the S&P 500 Index, however, may be
affected by, among other things, transaction costs, changes in either the
composition of the S&P 500 Index or the number of shares outstanding for the
components of the S&P 500 Index, and the timing and amount of shareholder
purchase and redemptions. The Fund may utilize stock index futures contracts to
minimize tracking error. In connection with engaging in futures transactions,
the Fund may hold cash, cash equivalents, and/or U.S. government securities.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical in common stocks. However, the Fund will maintain
a reasonable position in high-quality short-term debt securities and money
market instruments to meet redemption requests. If the Adviser believes that
market conditions warrant a temporary defensive posture, the Fund may invest
without limitation in high-quality short-term debt
45
<PAGE>
securities and money market instruments. These securities and money market
instruments may include domestic and foreign commercial paper, certificates of
deposit, bankers' acceptances and time deposits, U.S. government securities and
repurchase agreements.
The Fund may also invest a portion of its portfolio in instruments whose return
depends on stock market prices. These may include debt securities whose prices
or interest rates are indexed to the return of the S&P 500 Index, or swap
agreements linked to the S&P 500 Index, and options and futures contracts. The
Fund would invest in these types of instruments in order to seek to match the
total return of the Index in accordance with its investment objective. However,
instruments linked to stock market returns may not track the return of the Index
in all cases, and may involve additional credit risks. The Fund may also invest
in warrants. For additional information concerning the Fund's investment
practices, see "Appendix A."
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis. The inclusion of a stock in the S&P 500
Index in no way implies that S&P believes the stock to be an attractive
investment. The Index is determined, composed and calculated by S&P without
regard to the Fund. S&P is neither a sponsor of, nor in any way affiliated with
the Fund, and S&P makes no representation or warranty, expressed or implied, on
the advisability of investing in the Fund or as to the ability of the Index to
track general stock market performance. S&P disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Index or any data included therein.
GENERAL: Each Equity 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
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. Each Equity Fund also may invest in
restricted, private placement and other illiquid securities. Each Equity Fund
(except Nations Equity Index 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.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset classes in which the Fund invests:
common stocks, fixed income securities, and cash equivalents. In assessing
relative value and expected returns, the Adviser will evaluate current economic
and financial market conditions (both domestically and internationally), current
interest rate trends, earnings and dividend prospects for common stocks, and
overall financial market stability. These asset classes are actively managed in
an effort to maximize total return. In general, the Adviser believes that common
stocks offer the best opportunity for long-term capital appreciation.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as mortgage-backed securities.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated, determined by the
Adviser to be comparable in quality to instruments so rated. Obligations with
the lowest investment grade rating (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations. Subsequent to its
purchase by the 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.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
antici-
46
<PAGE>
pated redemption requests, or as a temporary defense measure if market
conditions warrant.
The Fund also may invest in certain specified derivative securities, including:
interest rate swaps, caps and floors for hedging purposes; exchange-traded
options; over-the-counter options executed with primary dealers, including long
calls and puts and covered calls to enhance return; and CFTC-approved U.S. and
foreign exchange-traded financial futures and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors and engage in dollar roll transactions. The
Fund may invest in real estate investment trust securities. The Fund also may
invest in restricted, private placement and other illiquid securities, and also
may purchase securities issued by other investment companies, consistent with
the Fund's investment objective and policies. See "Appendix A" below for
additional information concerning the investment practices of this Fund.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will not exceed seven years
and the duration will not exceed five years. U.S. Government Obligations have
historically involved little risk of loss of principal if held to maturity.
However, due to fluctuations in interest rates, the market value of such
securities may vary during the period a shareholder owns shares of the Fund. The
value of the Fund's portfolio generally will vary inversely with changes in
prevailing interest rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six 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-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, collateralized mortgage
obligations or "CMOs", real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years and the Fund's duration is expected to be in a range of 3.5 to six years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six 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-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed
securities rated by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality. Under normal market conditions, it is
expected that the average weighted maturity of the Fund's portfolio will be
greater than four years. Duration is expected to be 3.5 to six years. For a more
detailed description of the investment practices of this Fund, see "Appendix A".
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity and duration of the Fund's portfolio will not exceed three
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the six 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; and
mortgage-related securities of governmental issuers or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed and municipal securities
rated by one of the six NRSROs, or, if not so rated, determined by the Adviser
to be of comparable quality to instruments so rated.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities. As noted above, the Fund
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<PAGE>
will invest in investment grade debt obligations. Obligations rated in the
lowest of the top four investment grade rating categories (E.G. rated "BBB" by
S&P or "Baa" by Moody's) have speculative characteristics and changes in
economic conditions or other circumstances are more likely to lead to a weakened
capacity to make principal and interest payments than is the case with higher
grade debt obligations. 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.
See "Appendix B" below for a description of these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic circumstances warrant.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity of the Fund's portfolio will be greater than five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed- and variable-rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds," tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities.
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. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in "high quality" money market instruments (I.E.,
those within the two highest rating categories or unrated instruments deemed by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade debt obligations. It is expected that
the average weighted maturity of the Fund's portfolio will be 10 years or less
and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; U.S. Government
Obligations; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund may invest in long-term, intermediate-term and short-term
securities. Under normal market conditions, it is expected that the average
weighted maturity of the Fund's portfolio will be 10 years or less. Pursuant to
its investment objective, the Fund also may invest in dividend paying preferred
and common stock.
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<PAGE>
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. 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. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. Because the Fund intends to invest a large portion of its assets
in foreign Government Securities, the Fund is a "non-diversified" investment
company for purposes of the Investment Company Act of 1940 (the "1940 Act"). The
Fund may invest in securities of issuers located in any region or country and
that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various count-
ries and currencies will vary in accordance with the Adviser's assessment of the
relative yield and appreciation of such securities. Fundamental economic
strength, credit quality and interest rate trends are the principal factors
considered by the Adviser in determining whether to increase or decrease the
emphasis placed upon a particular country or particular type of security within
the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or "BBB" by S&P, but does not, as a general matter, intend to
invest more than 10% of its total assets in such securities. 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 event in determining whether the Fund should continue
to hold the obligation. In no event will the Fund hold more than 5% of its total
net assets in securities rated below investment grade. See "Appendix B" below
for a description of these rating designations. The Adviser expects that the
Fund's dollar-weighted average maturity will not be greater than fifteen years
under normal market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS MUNICIPAL INCOME FUND, NATIONS SHORT-TERM MUNICIPAL INCOME FUND AND
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: In pursuing their objectives, the
Funds will invest at least 80% of the total value of their assets in investment
grade obligations
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issued by or on behalf of states, territories, and possessions of the United
States, the District of Columbia, and their political subdivisions, agencies,
instrumentalities, and authorities, the interest on which, in the opinion of
counsel to the issuer or bond counsel, is exempt from Federal income tax
("Municipal Securities"). To the extent consistent with the Funds' investment
approach described in this Prospectus, the Funds are managed to seek capital
appreciation and minimize capital losses due to interest rate movements.
Under normal market conditions, the average weighted maturity and duration of
each of the Funds' portfolios are expected to be as follows: Nations Municipal
Income Fund -- average weighted maturity greater than 10 years and duration
between 7.5 and 9.5 years; Nations Intermediate Municipal Bond Fund -- average
weighted maturity between three and 10 years and duration between five and six
years; Nations Short-Term Municipal Income Fund -- average weighted maturity
less than three years and duration between 1.25 and 2.75 years.
Municipal Securities will be rated investment grade at the time of purchase by
at least one of the following nationally recognized statistical rating
organizations: D&P, Fitch, S&P, Moody's, IBCA or BankWatch (collectively,
"NRSROs") or, if unrated, determined by the Adviser to be of comparable quality
at the time of purchase to rated obligations that may be acquired by a Fund.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. 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 a
Fund. The Adviser will consider such an event in determining whether a Fund
should continue to hold the obligation. See "Appendix B" for a description of
these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by a Fund include repurchase agreements and short-term debt
securities. Under normal market conditions, each Fund's investments in taxable
obligations and private activity bonds, the interest on which may be treated as
a specific tax preference item under the Federal alternative minimum tax, will
not exceed 20% of its total assets at the time of purchase. The Funds may hold
uninvested cash reserves pending investment or during defensive periods.
STATE INTERMEDIATE MUNICIPAL BOND FUNDS AND STATE MUNICIPAL BOND FUNDS: Under
normal market conditions, at least 80% of the total value of the assets of the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
be invested in Municipal Securities, and substantially all of each Fund's assets
will be invested in debt instruments issued by or on behalf of the pertinent
state and its political subdivisions, agencies, instrumentalities and
authorities ("Municipal Securities"). Under normal market conditions, the
average weighted maturity and duration of each of the State Intermediate
Municipal Bond Funds and State Municipal Bond Funds are expected to be as
follows: State Intermediate Municipal Bond Funds -- average weighted maturity
between three and 10 years and duration between five and six years; State
Municipal Bond Funds -- average weighted maturity greater than 10 years and
duration greater than 10 years.
Each of the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds operates as a non-diversified fund (except to the extent diversification
is required for Federal income tax purposes).
Dividends paid by each of these Funds which are derived from interest
attributable to tax-exempt obligations of the pertinent state and that state's
political subdivisions, agencies, instrumentalities and authorities, as well as
certain other governmental issuers such as Puerto Rico, will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state. Texas and Florida do not impose a state
income tax; however, Florida imposes a state intangibles tax. Dividends derived
from interest on obligations of other governmental issuers will be exempt from
regular Federal income tax, but generally will be subject to state income tax
(with the exception of Texas and Florida). (See "How Dividends And Distributions
are Made; Tax Information.") During normal market conditions and as a matter of
fundamental investment policy, each of these Funds will invest at least 80% of
its total assets in obligations the interest on which will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state.
Municipal Securities acquired by the Funds will be rated investment grade at the
time of purchase at least one NRSRO or, if unrated, determined by the Adviser to
be of comparable quality at the time of purchase to rated obligations that may
be acquired by the Funds. Obligations rated in the lowest of the top four
investment grade rating categories (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
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 a Fund. The
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Adviser will consider such an event in determining whether a Fund should
continue to hold the obligation. See "Appendix B" below for a description of
these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by the Funds include repurchase agreements and short-term
debt securities. Under normal market conditions, each Fund's investments in
taxable obligations and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax, will not exceed 20% of its total assets at the time of purchase.
GENERAL: Each of the 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 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. Each of the Funds also may
lend its portfolio securities to qualified institutional investors and may
invest in restricted, private placement and other illiquid securities. Nations
Short-Intermediate Government Fund, Nations Government Securities Fund, Nations
Short-Term Income Fund, Nations Diversified Income Fund and Nations Strategic
Fixed Income Fund may engage in reverse repurchase agreements and dollar roll
transactions. Nations Global Government Income Fund may invest in money market
instruments, forward foreign currency exchange contracts, futures and options
and other instruments. Additionally, each Bond Fund may purchase securities
issued by other investment companies, consistent with the Fund's investment
objective and policies. Nations Tax Exempt Fund may invest more than 40% of its
portfolio in puts or other securities guaranteed by banks and other financial
institutions. Accordingly, changes in the credit quality of these institutions
could cause losses to the Fund and affect its share price. Certain government
securities that have variable or floating interest rates or demand, put or
prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity and duration of the Funds. 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 or partnerships.
For more information concerning these and other investments in which the Funds
may invest and their investment practices, see "Appendix A." Although changes in
the value of securities subsequent to their acquisition are reflected in the net
asset value of the Funds' shares, such changes will not affect the income
received by the Funds from such securities. However, since available yields vary
over time, no specific level of income can ever be assured. The dividends paid
by the Funds will increase or decrease in relation to the income received by the
Funds from their investments, which will in any case be reduced by the Funds'
expenses before being distributed to the Funds' shareholders.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN NATIONS INTERNATIONAL
EQUITY FUND, NATIONS EMERGING MARKETS FUND, NATIONS PACIFIC GROWTH FUND AND
NATIONS GLOBAL GOVERNMENT INCOME FUND: Investors should understand and consider
carefully the special risks involved in foreign investing. In addition, each
Fund presents unique risks that investors should be aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties.
The same is true, but even more so, for the emerging market countries in which
the Nations Emerging Markets Fund will invest. Although the Fund believes that
its investments present the possibility for significant growth over the long
term, they also entail significant risks. Many investments in emerging markets
can be considered speculative, and their prices can be much more volatile than
in the more developed nations of the world. This difference reflects the greater
uncertainties of investing in less established markets and economies. The
financial markets of emerging markets countries are generally less well
capitalized and thus securities of issuers based in such countries may be less
liquid.
Nations Global Government Income Fund's yield and share price will change based
on changes in domestic or
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foreign interest rates and in an issuer's creditworthiness. In general, bond
prices rise when interest rates fall, and vice versa.
Moreover, for each of the Funds, investing in securities denominated in foreign
currencies and utilization of forward foreign currency exchange contracts and
other currency hedging techniques involve certain considerations comprising both
opportunities and risks not typically associated with investing in U.S.
dollar-denominated securities. Additionally, changes in the value of foreign
currencies can significantly affect a Fund's share price. General economic and
political factors in the various world markets also can impact a Fund's share
price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
Certain government securities that have variable or floating interest rates or
demand, put or prepayment features or paydown schedules may be deemed to have
remaining maturities shorter than their nominal maturities for purposes of
determining the average weighted maturity and duration of the Funds.
For more information concerning these and other investments in which the Funds
may invest and the Funds' investment practices, see "Appendix A."
PORTFOLIO TURNOVER (NON-MONEY MARKET FUNDS): Generally, the Equity Funds, the
Balanced Fund and the Bond Funds (the "Non-Money Market 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 Fund and its shareholders. For the Funds' portfolio
turnover rates, see "Financial Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
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 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.
Since each of the State Intermediate Municipal Bond Funds and State Municipal
Bond Funds invests primarily in securities issued by entities located in a
single state, such Funds are more susceptible to changes in value due to
political or economic changes affecting that state or its subdivisions.
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 Funds'
investment objectives and do not unduly increase the Funds' exposure to market
or other risks. For additional risk information regarding the Funds' investments
in particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
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Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. In addition, this
limitation does not apply to investments by "money market funds" as that term is
used under the 1940 Act, in obligations of domestic banks.
2. Make loans, except that a Fund 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.
Nations Prime Fund, Nations Treasury Fund, Nations Government Money Market Fund,
Nations Tax Exempt Fund, Nations Value Fund, Nations Equity Income Fund, Nations
International Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth
Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Equity Index Fund, Nations Balanced Assets
Fund, Nations Short-Intermediate Government Fund, Nations Government Securities
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund, Nations Intermediate Municipal Bond Fund, Nations
Municipal Income Fund and Nations Short-Term Municipal Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's
total assets would be invested in the securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to these limitations and with respect to 75% of such Fund's
assets, such Fund will not hold more than 10% of the voting securities of
any issuer.
The Nations Global Government Income Fund, the State Intermediate Municipal Bond
Funds and the State Municipal Bond Funds may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of a Fund's
total assets would be invested in the securities of one issuer, and with
respect to 50% of such Fund's total assets, more than 5% of its assets
would be invested in the securities of one issuer.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations.
Also, as a matter of fundamental policy, except during defensive periods, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
invest at least 80% of their respective total net assets in Municipal Securities
the interest on which is exempt from Federal income tax and the pertinent
state's income taxes (with the exception of Texas and Florida). Similarly, as a
matter of fundamental policy, except during defensive periods, Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund and Nations Intermediate
Municipal Bond Fund will invest at least 80% of their respective total net
assets in Municipal Securities the interest on which is exempt from Federal
income taxes. For purposes of these fundamental policies, private activity bonds
are included in the term "Municipal Securities" only if the interest paid
thereon is exempt from Federal income tax and not treated as a specific tax
preference item under the Federal alternative minimum tax.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Money Market
Funds to value their investments on the basis of amortized cost, investments
must be in accordance with the requirements of Rule 2a-7 under the 1940 Act,
some of which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with a
remaining maturity of more than 397 days, provided such obligations are subject
to demand features or resets and to maintaining a dollar-weighted average
portfolio maturity of 90 days or less. Quality requirements generally limit
investments to U.S. dollar-denominated instruments determined to present minimal
credit risks and that at the time of acquisition are rated in the first or
second rating catego-
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ries (known as "first tier" and "second tier" securities, respectively) by the
required number of NRSROs (at least two or, if only one NRSRO has rated the
security, that one NRSRO) or, if unrated by any NRSRO, are (i) comparable in
priority and security to a class of short-term securities of the same issuer
that has the required rating, or (ii) determined to be comparable in quality to
securities having the required rating. The diversification requirements provide
generally that a Money Market Fund may not at the time of acquisition invest
more than 5% of its assets in securities of any one issuer except that up to 25%
of total assets may be invested in the first tier securities of a single issuer
for three business days. Additionally, (except for Nations Tax Exempt Fund) no
more than 5% of total assets may be invested, at the time of the acquisition, in
second tier securities in the aggregate, and any investment in second tier
securities of one issuer is limited to the greater of 1% of total assets or one
million dollars. Securities issued by the U.S. Government, its agencies,
authorities or instrumentalities, are exempt from the quality requirements,
other than minimal credit risk. In the event that a Money Market Fund's
investment restrictions or permissible investments are more restrictive than the
requirements of Rule 2a-7, the Money Market Fund's own restrictions will govern.
How Performance Is Shown
MONEY MARKET FUNDS: From time to time the Money Market Funds may advertise the
yield and effective yield on a class of shares and Nations Tax Exempt Fund also
may advertise the tax-equivalent yield of a class of shares. YIELD, EFFECTIVE
YIELD AND TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCE. The "yield" of a class of shares in a
Fund refers to the income generated by an investment in such class over a
seven-day period identified in the advertisement. This income is then
"annualized." That is, the amount of income generated by the investment during
that week is assumed to be generated each week over a 52-week period and is
shown as a percentage of the investment. The "effective yield" is calculated
similarly, but, when annualized, the income earned by an investment in a class
of shares in the Fund is assumed to be reinvested. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. The "tax-equivalent yield" of each class of shares in
Nations Tax Exempt Fund shows the level of taxable yield needed to produce an
after-tax equivalent to such class's tax-free yield. This is done by increasing
the class's yield (calculated as above) by the amount necessary to reflect the
payment of Federal income tax at a stated tax rate.
NON-MONEY MARKET FUNDS: From time to time the Non-Money Market Funds may
advertise the total return and yield on a class of shares. Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund, the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds also may advertise the tax-equivalent yield of a class of
shares. TOTAL RETURN, YIELD AND TAX-EQUIVALENT YIELD FIGURES ARE BASED ON
HISTORICAL EARNINGS AND ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The
"total return" of a class of shares of Non-Money Market Fund may be calculated
on an average annual total return basis or an aggregate total return basis.
Average annual total return refers to the average annual compounded rates of
return over one-, five-, and ten-year periods or the life of the Fund (as stated
in the advertisement) that would equate an initial amount invested at the
beginning of a stated period to the ending redeemable value of the investment,
assuming the reinvestment of all dividend and capital gains distributions.
Aggregate total return reflects the total percentage change in the value of the
investment over the measuring period again assuming the reinvestment of all
dividends and capital gains distributions. Total return may also be presented
for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
The "tax-equivalent yield" of Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds also may be
quoted from time to time, which shows the level of taxable yield needed to
produce an after-tax equivalent to the Fund's tax-free yield. This is done by
increasing the Fund's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
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In addition to Primary A Shares, the Money Market Funds offer Primary B,
Investor A, Investor B, Investor C and Investor D Shares. In addition to Primary
A Shares, the Non-Money Market Funds offer Primary B, Investor A, Investor C and
Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. Any fees charged by an institution directly to its customers' accounts
in connection with investments in the Funds will not be included in calculations
of total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or an investor's Institution, as defined below.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios are managed under the direction of their Board of Trustees
and Boards of Directors, respectively. Nations Fund Trust's SAI contains the
names of and general background information concerning each Trustee of Nations
Fund Trust. Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names
of and general background information concerning each Director of Nations Fund,
Inc. and Nations Portfolios.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Gartmore serves as sub-investment adviser. TradeStreet is a wholly owned
subsidiary of NationsBank. TradeStreet provides investment management services
to individuals, corporations and institutions.
Gartmore, with principal offices at One NationsBank Plaza, Charlotte, North
Carolina 28255, serves as sub-investment adviser to Nations International Equity
Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund pursuant to a sub-advisory agreement. Gartmore is
a joint venture structured as a general partnership between NB Partner Corp., a
wholly owned subsidiary of NationsBank, and Gartmore U.S. Limited, an indirect
wholly owned subsidiary of Gartmore Investment Management plc ("Gartmore plc"),
a UK company which is the holding company for a leading UK-based international
fund management group of companies, National Westminster Bank plc and affiliated
entities (collectively, "Natwest") own 100% of the equity of Gartmore Investment
Management plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore"), the
predecessor to Gartmore, pursuant to sub-advisory agreements among NBAI, Nations
Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on behalf
of the Funds. Nations Gartmore was a joint venture structured as a general
partnership between NB Partner Corp. and Gartmore U.S. Limited. On April 10,
1996, NatWest acquired a controlling interest in Gartmore plc from Compagnie de
Suez and affiliated entities ("Compagnie de Suez") through a direct purchase
from Compagnie de Suez of its indirect subsidiary Indosuez UK Asset Management
Limited, which held 75% of Gartmore plc's outstanding voting securities (the
"Acquisition"). NatWest acquired the remaining portion of Gartmore plc's shares
held by public shareholders through a tender offer. Gartmore is the successor
entity resulting from the Acquisition and change of control of Nations Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments
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for each Fund, makes decisions with respect to and places orders for each Fund's
purchases and sales of portfolio securities and maintains records relating to
such purchases and sales. With respect to the Non-Money Market Funds and Nations
Tax Exempt Fund, the Adviser is authorized to allocate purchase and sale orders
for portfolio securities to certain financial institutions, including, in the
case of agency transactions, financial institutions which are affiliated with
the Adviser or which have sold shares in such Funds, if the Adviser believes
that the quality of the transaction and the commission are comparable to what
they would be with other qualified brokerage firms. From time to time, to the
extent consistent with its investment objective, policies and restrictions, each
Fund may invest in securities of companies with which NationsBank has a lending
relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 0.20% of the combined average daily net assets of such Funds
in excess of $250 million; 0.40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund; 0.50% of the
average daily net assets of each of the Nations Equity Index Fund, Nations
Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund and
the State Intermediate Municipal Bond Funds; 0.60% of the average daily net
assets of each of the Nations Short-Intermediate Government Fund, Nations
Short-Term Income Fund, Nations Diversified Income Fund, Nations Strategic Fixed
Income Fund, Nations Municipal Income Fund and the State Municipal Bond Funds;
0.75% of the average daily net assets of each of Nations Value Fund, Nations
Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity
Fund and Nations Balanced Assets Fund; 0.65% of the first $100 million of
Nations Government Securities Fund's average daily net assets, plus 0.55% of the
Fund's average daily net assets in excess of $100 million and up to $250
million, plus 0.50% of the Fund's average daily net assets in excess of $250
million; 0.75% of the first $100 million of Nations Equity Income Fund's average
daily net assets, plus 0.70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus 0.60% of the Fund's average daily net
assets in excess of $250 million; 0.90% of the average daily net assets of
Nations International Equity Fund; 1.10% of the average daily net assets of
Nations Emerging Markets Fund; 0.90% of the average daily net assets of Nations
Pacific Growth Fund; and 0.70% of the average daily net assets of Nations Global
Government Income Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.055% of Nations Prime Fund's, Nations
Treasury Fund's, Nations Government Money Market Fund's and Nations Tax Exempt
Fund's average daily net assets; 0.20% of Nations Equity Income Fund's average
daily net assets; 0.10% of Nations Equity Index Fund's average daily net assets;
0.25% of Nations Value Fund's, Nations Balanced Assets Fund's, Nations Capital
Growth Fund's, Nations Emerging Growth Fund's and Nations Disciplined Equity
Fund's average daily net assets; 0.15% of Nations Short-Intermediate Government
Fund's, Nation's Government Securities Fund's, Nations Short-Term Income Fund's,
Nations Diversified Income Fund's and Nations Strategic Fixed Income Fund's
average daily net assets; and 0.07% of Nations Municipal Income Fund's, Nations
Short-Term Municipal Income Fund's, Nations Intermediate Municipal Bond Fund's,
Nations Florida Municipal Bond Fund's, Nations Georgia Municipal Bond Fund's,
Nations Maryland Municipal Bond Fund's, Nations North Carolina Municipal Bond
Fund's, Nations South Carolina Municipal Bond Fund's, Nations Tennessee
Municipal Bond Fund's, Nations Texas Municipal Bond Fund's, Nations Virginia
Municipal Bond Fund's, Nations Florida Intermediate Municipal Bond Fund's,
Nations Georgia Intermediate Municipal Bond Fund's, Nations Maryland
Intermediate Municipal Bond Fund's, Nations North Carolina Intermediate
Municipal Bond Fund's, Nations South Carolina Intermediate Municipal Bond
Fund's, Nations Tennessee Intermediate Municipal Bond Fund's, Nations Texas
Intermediate Municipal Bond Fund's and Nations Virginia Intermediate Municipal
Bond Fund's average daily net assets.
For services provided and expenses assumed pursuant to a sub-advisory agreement,
Gartmore is entitled to receive from NBAI sub-advisory fees, computed daily and
paid monthly, at the annual rate of 0.70% of Nations International Equity Fund's
average daily net assets; 0.85% of Nations Emerging Markets Fund's average daily
net assets; 0.70% of Nations Pacific Growth Fund's average daily net assets and
0.54% of Nations Global Government Income Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet and/or Nations Gartmore) may waive
or reimburse (either voluntarily or pursuant to applicable state limitations)
advisory fees or expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; Nations Tax Exempt
Fund -- 0.13%; Nations Value Fund -- 0.75%; Nations Capital Growth
Fund -- 0.75%; Nations Emerging
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Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%; Nations Equity
Index Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%; Nations Short-
Intermediate Government Fund -- 0.37%; Nations Short-Term Income Fund -- 0.27%;
Nations Diversified Income Fund -- 0.50%; Nations Strategic Fixed Income
Fund -- 0.50%; Nations Municipal Income Fund -- 0.30%; Nations Short-Term
Municipal Income Fund -- 0.06%; Nations Intermediate Municipal Bond Fund --
0.17%; Nations Florida Intermediate Municipal Bond Fund -- 0.14%; Nations
Florida Municipal Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal
Bond Fund -- 0.17%; Nations Georgia Municipal Bond Fund -- 0.10%; Nations
Maryland Intermediate Municipal Bond Fund -- 0.20%; Nations Maryland Municipal
Bond Fund -- 0%; Nations North Carolina Intermediate Municipal Bond
Fund -- 0.13%; Nations North Carolina Municipal Bond Fund -- 0.23%; Nations
South Carolina Intermediate Municipal Bond Fund -- 0.18%; Nations South Carolina
Municipal Bond Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond
Fund -- 0%; Nations Tennessee Municipal Bond Fund -- 0%; Nations Texas
Intermediate Municipal Bond Fund -- 0.11%; Nations Texas Municipal Bond
Fund -- 0.12%; Nations Virginia Intermediate Municipal Bond Fund -- 0.24%; and
Nations Virginia Municipal Bond Fund -- 0.16%.
For the fiscal period ended March 31, 1996, NationsBank reimbursed expenses at
the indicated rates of the following Funds' average daily net assets: Nations
Georgia Municipal Bond Fund -- 0.02%; Nations Maryland Municipal Bond
Fund -- 0.16%; Nations South Carolina Municipal Bond Fund -- 0.01%; Nations
Tennessee Municipal Bond Fund -- 0.19%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; Nations Treasury Fund -- 0.18%; Nations
Equity Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and
Nations Government Securities Fund -- 0.48%.
For the fiscal period from June 30, 1995 to December 31, 1995, after waivers,
Nations Portfolios paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth Fund --
0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; Nations Tax Exempt
Fund -- 0.13%; Nations Value Fund -- 0.75%; Nations Capital Growth
Fund -- 0.75%; Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity
Fund -- 0.75%; Nations Equity Index Fund -- 0.09%; Nations Balanced Assets
Fund -- 0.75% Nations Short-Intermediate Government Fund -- 0.37%; Nations
Short-Term Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%;
Nations Strategic Fixed Income Fund -- 0.50%; Nations Municipal Income
Fund -- 0.30%; Nations Short-Term Municipal Income Fund -- 0.06%; Nations
Intermediate Municipal Bond Fund -- 0.17%; Nations Florida Intermediate
Municipal Bond Fund -- 0.14%; Nations Florida Municipal Bond Fund -- 0.26%;
Nations Georgia Intermediate Municipal Bond Fund -- 0.17%; Nations Georgia
Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate Municipal Bond
Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0%; Nations North
Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North Carolina
Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate Municipal Bond
Fund -- 0.18%; Nations South Carolina Municipal Bond Fund -- 0.10%; Nations
Tennessee Intermediate Municipal Bond Fund -- 0%; Nations Tennessee Municipal
Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond Fund -- 0.11%;
Nations Texas Municipal Bond Fund -- 0.12%; Nations Virginia Intermediate
Municipal Bond Fund -- 0.24%; and Nations Virginia Municipal Bond Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; Nations Treasury Fund -- 0.18%; Nations
Equity Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and
Nations Government Securities Fund -- 0.48%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.055%; Nations Tax Exempt Fund -- 0.055%;
Nations Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations
Emerging Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations
Equity Index Fund -- 0.10%; Nations Balanced Assets Fund -- 0.25%; Nations
Short-Intermediate Government Fund -- 0.15%; Nations Short-Term Income
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Fund -- 0.15%; Nations Diversified Income Fund -- 0.15%; Nations Strategic Fixed
Income Fund -- 0.15%; Nations Municipal Income Fund -- 0.07%; Nations Short-Term
Municipal Income Fund -- 0.07%; Nations Intermediate Municipal Bond
Fund -- 0.07%; Nations Florida Intermediate Municipal Bond Fund -- 0.07%;
Nations Florida Municipal Bond Fund -- 0.07%; Nations Georgia Intermediate
Municipal Bond Fund -- 0.07%; Nations Georgia Municipal Bond Fund -- 0.07%;
Nations Maryland Intermediate Municipal Bond Fund -- 0.07%; Nations Maryland
Municipal Bond Fund -- 0.07%; Nations North Carolina Intermediate Municipal Bond
Fund -- 0.07%; Nations North Carolina Municipal Bond Fund -- 0.07%; Nations
South Carolina Intermediate Municipal Bond Fund -- 0.07%; Nations South Carolina
Municipal Bond Fund -- 0.07%; Nations Tennessee Intermediate Municipal Bond
Fund -- 0.07%; Nations Tennessee Municipal Bond Fund -- 0.07%; Nations Texas
Intermediate Municipal Bond Fund -- 0.07%; Nations Texas Municipal Bond
Fund -- 0.07%; Nations Virginia Intermediate Municipal Bond Fund -- 0.07%;
Nations Virginia Municipal Bond Fund -- 0.07%; Nations Prime Fund -- 0.055%;
Nations Treasury Fund -- 0.055%; Nations Equity Income Fund -- .20%; and Nations
Government Securities Fund -- 0.15%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds' average daily net assets: Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysts.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund. He has been
Portfolio Manager for Nations Equity Index Fund since 1993. Prior to assuming
his position with TradeStreet, he was Vice President and Structured Products
Manager for the Investment Management Group at NationsBank. He has worked in the
investment community since 1990. His past experience includes portfolio
management, derivatives management and quantitative analysis for the Investment
Management Group at NationsBank and Sovran Bank of Tennessee. Mr. Golden
received a B.B.A. in Finance from Belmont University. He is a Chartered
Financial Analyst candidate and a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager of the Nations Prime since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been the
Portfolio Manager of Nations Value Fund since 1989. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Herrmann has worked for
the Investment Management Group at NationsBank since 1981 where her
responsibilities included fund management and institutional portfolio
management. She attended Virginia Wesleyan College. Ms. Herrmann holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been the Portfolio Manager for Nations Equity Income Fund since
1991. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Manage-
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<PAGE>
ment Group at NationsBank. He has worked in the investment community since 1980.
His past experience includes fund analysis and portfolio management for National
Bank of Detroit. Mr. Williams received a B.S. in Accounting from East Carolina
University, Summa Cum Laude and an M.B.A. from Indiana University. He holds the
Chartered Financial Analyst designation, is on the Advisory Board of Indiana
University's Investment Management Academy, and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Stephen Watson has been Principal Portfolio Manager for Nations International
Equity Fund since February, 1995. He joined the Gartmore Group as a Global Fund
Manager in August 1993 and was recently appointed Head of the International and
Global Team. Prior to that, Mr. Watson was employed by James Capel Fund Managers
where he acted as a Director, Global Fund Manager and Client Services Manager
for various international clients. From 1980 to 1987 he was associated with
Capel-Cure Myers in their portfolio Management Division and prior to that he was
with the investment division at Samuel Montagu. Mr. Watson is currently a member
of the Securities Institute.
Philip Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Gartmore Emerging Markets Team. He has been Portfolio
Manager for Nations Emerging Markets Fund since the Fund's inception. Prior to
joining Nations Gartmore, Mr. Ehrmann was the Director of Emerging Markets for
Invesco in London. Mr. Ehrmann has over 15 years of investment management
experience.
Seok Teoh is Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been Portfolio Manager for Nations Pacific Growth Fund since the Fund's
inception. She has been associated with the Gartmore Group since 1990 as the
London based manager on its Far East desk. Prior to that, Ms. Teoh worked for
Overseas Union Bank Securities in Singapore where she was responsible for
Singaporean and Malaysian equity sales and then subsequently for Rothschild as a
Fund Manager in Singapore and later in Tokyo. Ms. Teoh, who is a native of
Singapore, is fluent in Mandarin and Cantonese and received an Economics degree
from the University of Durham in 1985.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the financial investment community since 1981. His
past experience includes portfolio management, equity research and financial
analysis for the Investment Management Group at NationsBank and Duke Power
Company. Mr. Sanders received a B.A. in Economics from the University of
Michigan and an M.B.A. from University of North Carolina at Charlotte. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been the Portfolio Manager for Nations Emerging
Growth Fund since 1992. Prior to assuming his position with TradeStreet, he was
Senior Vice President and Senior Portfolio Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1968. His
past experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager of the Nations Disciplined Equity Fund
since 1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's College and an M.B.A. from Kent State University. She
holds the Chartered Financial
59
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Analyst designation and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Security Analysts, Inc.
She is also a member of the National Association for Petroleum Investment
Analysts and the World Affairs Council of Washington, D.C.
Mark Rimmer is the Principal Portfolio Manager for Nations Global Government
Income Fund and has been an International Fixed Income Manager with the Gartmore
Group since 1990. He has been Portfolio Manager for Nations Global Government
Income Fund since 1995. He joined Gulf International Bank in 1986 on the trading
desk, and subsequently joined their Investment Management Group in 1988,
managing multi-currency funds for institutional clients in the Gulf region.
Prior to that he was associated with Sumitomo Finance International as a senior
trader. Mr. Rimmer graduated from Cambridge University in 1984 with an honors
degree in Economics. Mr. Rimmer also is a member of the Institute of Investment
Management and Research.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and the Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud
has been the Portfolio Manager for the Nations Diversified Income Fund since
1992. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Ahnrud has worked for the Investment Management Group at
NationsBank since 1985 where his responsibilities initially included
institutional investment management sales and later involved high yield credit
analysis. Mr. Ahnrud received a dual B.S. in Finance and Investments from Babson
College and an M.B.A. from Duke University, Fuqua School of Business. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Michele M. Poirier is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and Senior Portfolio Manager for Nations Municipal
Income Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond
Fund and Nations South Carolina Municipal Bond Fund. Ms. Poirier has been
Portfolio Manager for Nations Municipal Income Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond
Fund, and South Carolina Intermediate Municipal Bond Fund since 1992. She has
been Portfolio Manager for the other Funds since 1993. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. She has worked in
the investment community since 1974. Her past experience includes serving as
Director of Trading, Institutional Sales, and Municipal Trader for Financial
Service Corporation, Bankers Trust Company and The Robinson-Humphrey Company
respectively. Ms. Poirier received a B.B.A. in Marketing from Georgia State
University.
Mathew M. Kiselak is a Product Manager, Municipal Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Short-Term Municipal Income Fund,
Nations North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations
Tennessee Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund
and Nations Texas Municipal Bond Fund. Mr. Kiselak has been Portfolio Manager
for Nations North Carolina Intermediate Municipal Bond Fund and Nations North
Carolina Municipal Bond Fund since 1995. He has been Portfolio Manager for the
other Funds since 1994. Prior to assuming his position with TradeStreet, he was
Vice President and Portfolio Manager for the Investment Management Group at
NationsBank. He has worked in the investment community since 1987. His past
experience includes Portfolio Manager and Municipal Credit Analysis for Reich &
Tang Inc. Mr. Kiselak received a B.A. in Economics from Pace University.
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John C. Kohl is a Director of Municipal Fixed Income Management and Municipal
Fixed Income Management for TradeStreet. He is responsible for overseeing all
municipal product management and is the Senior Portfolio Manager for Nations
Intermediate Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond
Fund, Nations Maryland Municipal Bond Fund, Nations Virginia Intermediate
Municipal Bond Fund and Nations Virginia Municipal Bond Fund. Mr. Kohl has been
Portfolio Manager for the Funds since 1994. Prior to assuming his position with
TradeStreet, he was Senior Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Kohl has worked in the
investment community since 1979. His past experience includes serving as Chief
Investment Officer for London Pacific Life & Annuity, Team Leader and Portfolio
Manager for Harris Trust and Savings Bank, and Management Consultant for
asset-liability of Continental Bank. Mr. Kohl received a joint B.A. in Economics
and North American Studies from McGill University.
David M. Hetherington, CFA, is a Director of TradeStreet and Managing Director
of Fixed Income Management. Mr. Hetherington is responsible for overseeing all
fixed income product management and is Senior Portfolio Manager for Nations
Short-Term Income Fund. Mr. Hetherington has been Portfolio Manager for Nations
Short-Term Income Fund since 1995. Previously he was Senior Vice President and
Director of Fixed Income for the Investment Management Group at NationsBank. Mr.
Hetherington has worked in the investment community since 1975. His past
experience includes working as a portfolio manager, a trust investment officer
and a securities analyst for First Citizens Bank and Deposit Guarantee as well
as working as an Economist for the U.S. Department of Labor in the Bureau of
Labor Statistics. Mr. Hetherington received a B.A. in Economics from Duke
University. He holds the Chartered Financial Analyst designation and is a member
of the Association for Investment Management and Research.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements 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.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Government Money
Market Fund, Nations Tax Exempt Fund -- 0.09%; Nations Value Fund, Nations
Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity
Fund, Nations Equity Index Fund, Nations Balanced Assets Fund, Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund, Nations Municipal
Income Fund, Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund, Nations Florida Intermediate Municipal Bond Fund, Nations
Florida Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund,
Nations Georgia Municipal Bond Fund, Nations Maryland Intermediate Municipal
Bond Fund, Nations Maryland Municipal Bond Fund, Nations North Carolina
Intermediate Municipal Bond Fund, Nations North Carolina Municipal Bond Fund,
Nations South Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Municipal Bond Fund,
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Nations Tennessee Intermediate Municipal Bond Fund, Nations Tennessee Municipal
Bond Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Texas
Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond Fund, and
Nations Virginia Municipal Bond Fund -- 0.10%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
Nations Treasury Fund -- 0.05%; Nations Equity Income Fund -- 0.10%; Nations
International Equity Fund -- 0.10%; and Nations Government Securities
Fund -- 0.10%.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the rate of 0.10% of
the following Funds' average daily net assets: Nations Pacific Growth Fund,
Nations Emerging Markets Fund and Nations Global Government Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of .01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Primary A Shares of the Funds.
Bank of New York, Avenue des Arts, 35 1040 Brussels, Belgium, serves as
custodian for the assets of the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund.
First Data serves as the Transfer Agent for each of the Fund's Primary A Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, collectively with Bank
of New York, called "Custodians") serves as custodian for the assets of each
Fund except Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund.
NationsBank of Texas, which also serves as the sub-transfer agent for each
Fund's Primary A Shares, is located at 1401 Elm Street, Dallas, Texas 75202, and
is a wholly owned subsidiary of NationsBank Corporation. In return for providing
custodial services, NationsBank of Texas is entitled to receive, in addition to
out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1% of
the average daily net assets of each Fund for which it acts as custodian, (ii)
$10.00 per repurchase collateral transaction by such Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving such Funds. In return for
providing sub-transfer agency services for the Primary A Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; fees (including fees paid to Nations Fund's trustees, directors
and officers); federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodians and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Any general expenses of Nations Fund Trust, Nations
Fund, Inc. and/or Nations Portfolios that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios or in such
other manner as the Board of Trustees or the relevant Board of Directors
determines is fair and equitable.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional
Reserves. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Money Market
Funds currently offer six classes of shares -- Primary A Shares, Primary B
Shares, Investor A Shares, Investor B Shares, Investor C Shares and Investor D
Shares. The Non-Money Market Funds currently offer five classes of
shares -- Primary A Shares, Primary B Shares, Investor A Shares, Investor C
Shares and Investor N Shares. Certain Funds, however, do not offer shares of
each class. This Prospectus relates only to the Primary A Shares of the
following funds of Nations Fund Trust: Nations Government Money Market Fund,
Nations Tax Exempt Fund, Nations Value Fund, Nations Capital Growth Fund,
Nations Emerging Growth Fund, Nations Disciplined Equity Fund, Nations Equity
Index Fund, Nations Balanced Assets Fund, Nations Short-Intermediate Government
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund, Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond
Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations North Carolina
Intermediate Municipal Bond Fund, Nations South Carolina Intermediate Municipal
Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Virginia Intermediate Municipal Bond
Fund, Nations Florida Municipal Bond Fund, Nations Georgia Municipal Bond Fund,
Nations Maryland Municipal Bond Fund, Nations North Carolina Municipal Bond
Fund, Nations South Carolina Municipal Bond Fund, Nations Tennessee Municipal
Bond Fund, Nations Texas Municipal Bond Fund and Nations Virginia Municipal Bond
Fund. To obtain additional information regarding the Funds' other classes of
shares which may be available to you, contact your Institution (as defined
below) or Nations Fund at 1-800-626-2275.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
1940 Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Primary A Shares of the following funds of Nations Fund, Inc.: Nations Prime
Fund, Nations Treasury Fund, Nations Equity Income Fund, Nations International
Equity Fund and Nations Government Securities Fund. To obtain additional
information regarding the Funds' other classes of shares which may be available
to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a
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particular fund or class will have the exclusive right to vote on matters
affecting only the rights of the holders of such fund or class. In the event of
dissolution or liquidation, holders of each class will receive pro rata, subject
to the rights of creditors, (a) the proceeds of the sale of that portion of the
assets allocated to that class held in the respective fund of Nations Fund,
Inc., less (b) the liabilities of Nations Fund, Inc. attributable to the
respective fund or class or allocated among the funds or classes based on the
respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Primary A Shares of Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund of Nations Portfolios. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Institution (as defined below) or Nations Fund at 1-800-626-2275.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations
Portfolios' SAI. It is anticipated that Nations Portfolios will not hold annual
shareholder meetings on a regular basis unless required by the 1940 Act or
Maryland law.
Because this Prospectus combines disclosures on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios have entered into an indemnification agreement
that creates a right of indemnification from the investment company responsible
for any such misstatement, inaccuracy or incomplete disclosure that may appear
in this Prospectus.
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About Your Investment
How To Buy Shares
Primary A Shares may be sold to financial institutions (including NationsBank
and its affiliated and correspondent banks) and fee-based planners acting on
behalf of their customers, employee benefit plans, charitable foundations and
endowments. Primary A Shares may, at times, be sold to other similar categories
of investors.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions ("Institutions") acting on behalf of their
customers ("Customers") may establish certain procedures for processing
Customers' purchase orders and may charge their Customers for services provided
to them in connection with their investments.
Purchases of the Money Market Funds may be effected on days on which the Federal
Reserve Bank of New York is open for business (a "Bank Business Day"). Purchases
of the Non-Money Market Funds may be effected on days on which the New York
Stock Exchange (the "Exchange") is open for business (a "NYSE Business Day").
Unless otherwise specified, the term Business Day in this Prospectus refers to a
Bank Business Day with respect to a Money Market Fund, and a NYSE Business Day
with respect to a Non-Money Market Fund.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary A Shares is recorded on the books of the Funds, and share certificates
are not issued. It is the responsibility of Institutions, when applicable, to
record beneficial ownership of Primary A Shares and to reflect such ownership in
the account statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES -- MONEY MARKET FUNDS: Purchases will be effected
only when federal funds are available for investment on the Business Day the
purchase order is received by Stephens or by the Transfer Agent. A purchase
order must be received by Stephens or by the Transfer Agent by 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund). A purchase order received by Stephens or
the Transfer Agent after such time will not be accepted; notice thereof will be
given to the Institution or investor placing the order, and any funds received
will be returned promptly to the sending Institution or investor. If federal
funds are not available by 4:00 p.m., Eastern time, the order will be canceled.
Primary A Shares are purchased at the net asset value per share next determined
after receipt of the order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
EFFECTIVE TIME OF PURCHASES -- NON-MONEY MARKET FUNDS: Purchase orders for
Primary A Shares in the Non-Money Market Funds which are received by Stephens or
by the Transfer Agent before the close of regular trading hours on the Exchange
(currently 4:00 p.m., Eastern time) on any Business Day are priced according to
the net asset value determined on that day but are not executed until 4:00 p.m.,
Eastern time, on the Business Day on which immediately available funds in
payment of the purchase price are received by the Fund's Custodian. Such payment
must be received not later than 4:00 p.m., Eastern time, by the third Business
Day following receipt of the order. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Institution
or investor placing the order. Payment for orders which are not received or
accepted will be returned after prompt inquiry to the sending Institution or
investor. Primary A Shares are purchased at the net asset value per share next
determined after receipt of the order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases of Primary A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
With respect to the Money Market Funds, redemption orders must be received on a
Business Day before 3:00 p.m., Eastern time (12 noon, Eastern time, with respect
to Nations Tax Exempt Fund and Nations Government Money Market Fund), and
payment will normally be wired the same day to the Institution or investor.
Nations Fund reserves the right to wire redemption proceeds within three
Business Days after receiving the redemption orders if, in the judgment of the
Adviser, an earlier payment could adversely impact a Fund. However, redemption
proceeds for shares purchased by check may not be remitted until at least 15
days after the date of purchase to ensure that the check has cleared; a
certified check, however, is deemed to be cleared immediately. Redemption orders
will not be accepted by Stephens or by the Transfer Agent after 3:00 p.m.,
East-
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ern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund) for execution on that Business Day.
With respect to the Non-Money Market Funds, redemption proceeds are normally
remitted in federal funds wired to the redeeming Institution or investor within
three Business Days following receipt of the order.
Nations Fund may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a Customer has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the Customer may
be obliged to redeem all or a part of his or her Primary A Shares in the Funds
to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Institutions are responsible for transmitting redemption orders to Stephens or
to the Transfer Agent and for crediting their Customers' accounts with the
redemption proceeds on a timely basis. It is the responsibility of Stephens to
transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary A Shares and may establish additional procedures.
Information concerning any charges or procedures is available from the
Institutions. Redemption orders are effected at the net asset value per share
next determined after acceptance of the order by Stephens or by the Transfer
Agent.
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of a Fund to
acquire Primary A Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A Shares of another Fund is made on the basis of
the next calculated net asset value per share of each Fund after the exchange
order is received.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently sixty days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within ninety days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
If you have telephone exchange privileges, during periods of significant
economic or market change, such telephone exchanges may be difficult to
complete. In such event, shares may be exchanged by mailing your request
directly to the entity through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens or the Transfer Agent. Investors should consult their
Institution, Stephens, or the Transfer Agent for further information regarding
exchanges. Your exchange feature may be governed by your account agreement with
your Institution.
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Money Market Funds are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), each Bank Business Day. Shares of the
Non-Money Market Funds are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each NYSE Business Day.
Cur-
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rently, the days on which the Federal Reserve Bank of New York is closed (other
than weekends) are: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Memorial Day (observed), Independence Day, Labor Day, Columbus Day,
Thanksgiving Day and Christmas Day. Currently, the days on which the Exchange is
closed (other than weekends) are: New Year's Day, Presidents' Day, Good Friday,
Memorial Day (observed), Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
With respect to the Non-Money Market Funds, portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities are valued at their fair
value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS
MONEY MARKET FUNDS: Dividends from net investment income of each of the Money
Market Funds are declared daily to shareholders at 3:00 p.m., Eastern time (1:00
p.m., Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), on the day of declaration. Primary A Shares begin
earning dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in cash within five Business Days
after a shareholder's complete redemption of his Primary A Shares in a Fund. To
the extent that there are any net short-term capital gains, they will be paid at
least annually.
NON-MONEY MARKET FUNDS: Dividends from net investment income are declared daily
and paid monthly by the Bond Funds. Dividends from net investment income are
declared and paid each calendar quarter by the Equity Funds and the Balanced
Fund. Each Fund's net realized capital gains (including net short-term capital
gains) are distributed at least annually.
Primary A Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Primary A Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided, however, that the
purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
The net asset value of Primary A Shares in the Non-Money Market Funds will be
reduced by the amount of any dividend or distribution. Dividends and
distributions are paid in cash within five Business Days of the end of the month
or quarter to which the dividend relates. Dividends are paid within five
Business Days after the end of each month. Dividends are paid in the form of
additional Primary A Shares of the same Fund unless the Customer or investor has
elected prior to the date of distribution to receive payment in cash. Such
election, or any revocation thereof, must be made in writing to the Fund's
Transfer Agent and will become effective with respect to dividends paid after
its receipt. Dividends and distributions payable to a shareholder are paid in
cash within five Business Days after a shareholder's complete redemption of his
or her Primary A Shares in a Fund.
TAX INFORMATION
Each of the Funds intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax to the extent
its earnings are distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by a Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds may be entitled to the dividends-received
deduction for distributions from those Funds investing in the stock of domestic
corporations to the extent of the total qualifying dividends received by the
distributing Fund. Corporate
sharehold-
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ers of Nations International Equity, Nations Emerging Markets and Nations
Pacific Growth Funds may be eligible for the dividends-received deduction on the
dividends (excluding the net capital gains dividends) paid by these Funds to the
extent that each such Fund's income is derived from dividends (which, if
received directly, would qualify for such deduction) received from domestic
corporations. In order to qualify for the dividends-received deduction, a
corporate shareholder must hold the fund shares paying the dividends upon which
the deduction is based for at least 46 days.
Substantially all of the net realized long-term capital gains of the Non-Money
Market Funds, if any, will be distributed at least annually to such Funds'
shareholders. These Funds will generally have no tax liability with respect to
such gains, and the distributions will be taxable to such shareholders who are
not currently exempt from Federal income tax as long-term capital gains,
regardless of how long the shareholders have held such Funds' shares and whether
such gains are received in cash or reinvested in additional shares. The Money
Market Funds do not expect to realize long-term capital gains and, therefore, do
not expect to distribute any capital gain dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each Fund will consist of securities of foreign
issuers, and therefore each Fund may elect to "pass through" to its shareholders
these foreign taxes, if any. In such event each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income tax for such amount.
NATIONS TAX EXEMPT FUND, NATIONS MUNICIPAL INCOME FUND, NATIONS SHORT-TERM
MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND FUND, THE STATE
INTERMEDIATE MUNICIPAL BOND FUNDS AND THE STATE MUNICIPAL BOND FUNDS
As regulated investment companies, each of these Funds is entitled to pass
through to their shareholders tax-exempt interest income ("exempt-interest
dividends") subject to certain conditions which these Funds intend to satisfy.
To the extent that any of these Funds earn taxable income or realize long-term
capital gains, distributions to shareholders from such sources will be subject
to Federal income tax. The policy of Nations Municipal Income Fund, Nations
Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond Fund, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds is to
pay to their shareholders an amount equal to at least 90% of their
exempt-interest income net of certain deductions and 90% of their investment
company taxable income. Nations Tax Exempt Fund does not intend to earn
investment company taxable income or long-term capital gains. Exempt-interest
dividends may be treated by shareholders as items of interest excludable from
their Federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund, Nations Municipal Income Fund, Nations Intermediate Municipal Bond Fund
and Nations Short-Term Municipal Income Fund may be taxable to investors under
state or local law even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
If any of these Funds should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate
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shareholders must also take all exempt-interest dividends into account in
determining certain adjustments for Federal alternative minimum and
environmental tax purposes. The environmental tax applicable to corporations is
imposed at the rate of 0.12% on the excess of the corporation's modified Federal
alternative minimum taxable income over $2,000,000. Shareholders receiving
Social Security benefits should note that all exempt-interest dividends will be
taken into account in determining the taxability of such benefits.
With respect to the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds, it is anticipated that exempt-interest dividends derived
from tax-exempt interest paid on municipal obligations of the pertinent state
and that state's political subdivisions, agencies, instrumentalities and
authorities, and certain other issuers, including Puerto Rico and Guam, will be
exempt from state income tax with respect to those states which impose a state
income tax. Florida and Texas do not impose income taxes, but Florida imposes a
tax upon intangible personal property which may apply to shares of Nations
Florida Intermediate Municipal Bond Fund and Nations Florida Municipal Bond Fund
held by residents of that state. Florida has issued a Technical Assistance
Advisement indicating that shares in such Funds will not be subject to Florida's
intangibles tax, subject to certain requirements which the Funds intend to
satisfy. See Nations Fund Trust's SAI for further details about state tax
treatment relevant to shareholders of these Funds.
In addition to annual disclosures as to Federal tax consequences of dividends
and distributions, shareholders of the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds will also be advised as to the state tax
consequences of dividends and distributions made each year.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, 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 GNMA, by FNMA and FHLMC. Such Certificates
are mortgage-backed securities which represent a partial ownership interest in a
pool of
mort-
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gage 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. Each mortgage loan included in the pool is either insured by
the Federal Housing Administration ("FHA") or guaranteed by the Veterans
Administration ("VA").
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 on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
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.
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.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
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. For additional information concerning
mortgage backed securities, see the related SAI.
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
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owning such assets and issuing such debt. Such securities also may include
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 or partnerships.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the 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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Prime Fund may invest up to 100% of its assets in obligations issued by
banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund
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invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, the Funds may use reverse repurchase agreements
for the purpose of investing the proceeds in tri-party repurchase agreements.
Generally, the effect of such a transaction is that the Funds can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while they will be able to keep the
interest income associated with those portfolio securities. Such transactions
are only advantageous if the interest cost to the Funds of the reverse
repurchase transaction is less than the cost of obtaining the cash otherwise.
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. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations 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 objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common
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stock at a specified price any time during the life of the warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
Foreign currency hedging transactions are an attempt to protect a 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. 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 will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and
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swap-related products such as interest rate swaps, currency swaps, caps, collars
and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
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.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. The Non-Money Market Funds will not
hold more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund, the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds may be subject to this limitation.
If otherwise consistent with their investments objective and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by such Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
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LOWER-RATED DEBT SECURITIES: Certain of the Funds may invest in lower-rated debt
securities. Lower rated, high-yielding securities are those rated "Ba" or "B" by
Moody's or "BB" or "B" by S&P which are commonly referred to as "junk bonds."
These bonds provide poor protection for payment of principal and interest.
Lower-quality bonds involve greater risk of default or price changes due to
changes in the issuer's creditworthiness than securities assigned a higher
quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
MONEY MARKET INSTRUMENTS: With respect to Non-Money Market Funds, the term
"money market instruments" refers to instruments with remaining maturities of
one year or less. With respect to Money Market Funds, the term "money market
instruments" refers to instruments with remaining maturities of 397 days or
less, or instruments subject to demand features or resets if the remaining
maturity is more than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury Obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: 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.
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. To the extent these
securities 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
munic-
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ipal borrower, including its ability to meet contractual payment obligations.
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 tax.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes.
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.
Since each of the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds will invest primarily in securities issued by issuers
located in one state, each of these Funds is susceptible to changes in value due
to political and economic factors affecting that state's issuers. A comparable
municipal bond fund which is not concentrated in obligations issued by issuers
located in one state would be less susceptible to these risks. If any issuer of
securities held by one of these Funds is unable to meets its financial
obligations, that Fund's income, capital, and liquidity may be adversely
affected.
The fourth most populous state, Florida, rated "Aa" by Moody's and "AA" by both
S&P and Fitch, has been and continues to be a leading tourist and retiree
destination. Florida's growing population and manageable debt load are just two
of the factors that will help Florida remain a solid investment. Led by the
service, construction and trade sectors, job growth in Florida has rebounded
from the lows of 1991-1992 and is projected to be almost double the national
average for 1996. Tourism was back in 1995 after it had suffered in the prior
two years due to hurricane Andrew and a rash of violent crimes involving foreign
tourists.
The state of Georgia has one of the best debt structures in the country, hence
the "Aaa" by Moody's, and "AAA" rating by both S&P and Fitch. The population of
Georgia has been growing at twice the national rate for the past four years. Job
growth and economic expansion have been outstanding in recent years, as Georgia
prepares to host the 1996 Summer Olympic Games. Following the Olympics,
Georgia's economy should continue to expand, albeit at a slightly lower rate.
This is due in part to Georgia's competitive manufacturing base, and the diverse
service and transportation center of Atlanta.
Maryland is one of the wealthiest states in the U.S. and has been able to
maintain its "Aaa" rating by Moody's, and "AAA" rating by both Fitch and S&P,
despite the contraction of government and defense related industries. Maryland's
economic base is highly diversified with a lower than average dependence on
manufacturing. Slow growth in Maryland is expected to continue, as government
cutbacks and downsizing reduce the employment opportunities within the state.
Debt ratios are moderate and, with Maryland ranked fifth in per capita income,
it's no surprise that income taxes and highway use taxes provide the vast
majority of support for general obligation debt. As defense cutbacks continue,
Maryland's dependence on income taxes could depress growth within the state
below national levels.
North Carolina, rated "Aaa" by Moody's, and "AAA" by both S&P and Fitch, has
benefited from an inflow of people as well as businesses. This is due in part to
North Carolina's affordable housing, above-average growth in per capita income
and below-average cost of doing business. North Carolina's declining textile
industry has begun to give way to the high-tech and financial sectors, as
evidenced by the title of "Banking Center of the South." Consequently, high wage
job growth has been expanding at a pace greater than national averages and is
expected to continue to do so for the foreseeable future.
The dominance of the manufacturing sector has been both a positive and a
negative for South Carolina. On the positive side, the expansion of
manufacturing, specifically autos and related parts, has lessened the impact of
the naval base closure in Charleston and provided a much needed infusion of new
jobs. On the negative side, the cyclical nature of South Carolina's
manufacturing economy has kept per capita income below national levels and
considerably below regional levels. That said, South Carolina's low debt burden,
strong security arrangements and lack of credit extension have led to a "Aaa"
rating by Moody's, "AA+" rating by S&P and a "AAA" rating by Fitch, for the
state. Combine this with
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a conservative plan of finance, and South Carolina looks to be in a very strong
financial position, despite its reliance on the manufacturing sector.
Tennessee's very low debt burden, nearly exclusive use of general obligation
debt and conservative financial policies all combine to give the state of
Tennessee a "Aaa" rating by Moody's, "AA+" rating by S&P, and a "AAA" rating by
Fitch. Tennessee's economy remains in a developing mode, as the state continues
to shift its growth in manufacturing output to autos (Tennessee ranks third in
the nation in automobile production) and related products from textiles.
Tennessee relies on sales tax revenues as a main source of funds. This could
prove to be a limiting factor were it not for Tennessee's strong pattern of job
growth and growing population.
Texas has proven its ability to adapt and rebound to a changing economic
environment, both within the state and abroad. Texas has also historically taken
a conservative approach to financial management, as is reflected in the state's
"Aa" rating by Moody's, "AA" rating by S&P, and "AA-" rating by Fitch. Although
Texas has consistently led the U.S. in employment growth, unemployment in Texas
is above the national average. This is due, in part, to the heavy migration into
the state (in 1994 Texas replaced New York as the second most populous state).
Look for economic conditions in Texas to improve further as Mexico comes out of
its economic dilemma.
The state of Virginia has earned its "Aaa" rating by Moody's and "AAA" rating by
S&P and Fitch, by having a low relative tax rate, high per capita income and
strong growth in service sector jobs. A very high share of Virginia's population
is college educated, so it's no surprise that Virginia has the highest per
capita income of any of the southern states. Virginia has also maintained a low
unemployment rate despite strong growth in the labor force. Although it has a
large exposure to defense and related industries, Virginia's prudent financial
management and low debt burden should help to insulate it from any government
cutbacks in those areas.
There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. More detailed information about matters relating to each of the
State Intermediate Municipal Bond Funds and State Municipal Bond Funds is
contained in Nations Fund Trust's SAI.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in their
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
SHORT SALES: A short sale is the sale of a security that a Fund does not own. A
short sale is "against the box" if at all times when the short position is open
a Fund owns an
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equal amount of securities convertible into, or exchangeable without further
consideration for, securities of the same issuer as the securities sold short.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by the trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts, and therefore backed by the full faith and
credit, of the U.S. Treasury, in some cases payment of interest and principal on
such obligations is guaranteed by the U.S. Government, E.G., GNMA certificates;
in other cases interest and principal are not guaranteed, E.G., obligations of
the Federal Home Loan Bank System and the Federal Farm Credit Bank. No assurance
can be given that the U.S. Government would provide financial support to
government-sponsored instrumentalities if it is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. Certain Funds may
invest in securities with demand features where (a) the security or its issuer
has received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered illiquid if there is no secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
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Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be
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negligible, being only slightly more than for risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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.
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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 obligations. Issuers
rated Prime-2 (or related supporting institutions) are considered to have a
strong capacity for repayment of senior short-term obligations. This will
normally be evidenced by many of the characteristics of issuers rated Prime-1,
but to a lesser degree. Earnings trends and coverage ratios, while sound, will
be more subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
81
<PAGE>
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:
A1+ -- When issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
82
<PAGE>
Prospectus
Primary A Shares
July 31, 1996
MONEY MARKET FUNDS
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market
Fund
EQUITY FUNDS
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND
Nations Balanced Assets Fund
BOND FUNDS
Nations Short-Intermediate Government
Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government Income
Fund
Investment Adviser: NationsBanc Advisors, Inc.
Sub-Investment Adviser: TradeStreet Investment Associates, Inc.
Sub-Investment Adviser: Gartmore Global Partners
Distributor: Stephens Inc.
<PAGE>
Prospectus
Primary A Shares
July 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund") of
Nations Fund Trust, Nations Fund, Inc., and Nations
Fund Portfolios, Inc. ("Nations Portfolios"), each
an open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations Fund
Family"). This Prospectus describes one class of
shares of each Fund -- Primary A Shares (formerly
called Trust A Shares). Nations Disciplined Equity
Fund was formerly called "Nations Special Equity
Fund."
Nations Prime Fund, Nations Treasury Fund and
Nations Government Money Market Fund (the "Money
Market Funds") seek to maintain a net asset value of
$1.00 per share. Investments in these Funds are
neither insured nor guaranteed by the U.S.
Government and there can be no assurance that these
Funds will be able to maintain a stable net asset
value of $1.00 per share.
This Prospectus sets forth concisely the information
about each Fund that a prospective purchaser of
Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios is contained in separate Statements of
Additional Information (the "SAIs"), that have been
filed with the Securities and Exchange Commission
(the "SEC") and are available upon request without
charge by writing or calling Nations Fund at its
address or telephone number shown below. The SAIs
for Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios, each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc. ("NBAI")
is the investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to certain of the Funds and
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the other Funds. As used
herein the "Adviser" shall mean NBAI, TradeStreet
and/or Gartmore as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
MONEY MARKET FUNDS:
Nations Prime Fund
Nations Treasury Fund
Nations Government Money Market Fund
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations International Equity Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS:
Nations Short-Intermediate Government Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government Income Fund
For Fund information call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 22
How Objectives Are Pursued 23
How Performance Is Shown 35
How The Funds Are Managed 36
Organization And History 42
About Your
Investment
How To Buy Shares 44
How To Redeem Shares 45
How To Exchange Shares 45
How The Funds Value Their Shares 46
How Dividends And Distributions Are Made;
Tax Information 46
Appendix A -- Portfolio Securities 48
Appendix B -- Description Of Ratings 56
No person has been authorized to give any
information or to make any representations not
contained in this Prospectus, or in the Funds' SAIs
incorporated herein by reference, in connection with
the offering made by this Prospectus and, if given
or made, such information or representations must
not be relied upon as having been authorized
by Nations Fund or its distributor. This Prospectus
does not constitute an offering by Nations Fund or
by the distributor in any jurisdiction in which such
offering may not lawfully be made.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) Type of Companies: Open-end management investment companies.
(Bullet) Investment Objectives and Policies:
(Bullet) Money Market Funds:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the
preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent
with the preservation of capital and the maintenance of
liquidity.
(Bullet) Nations Government Money Market Fund's investment
objective is to seek as high a level of current
income as is consistent with liquidity and
stability of principal.
(Bullet) Equity Funds:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is to
seek current income and growth of capital by investing
primarily in companies with above average dividend yields.
(Bullet) Nations International Equity Fund's investment
objective is to seek long-term capital growth by
investing primarily in equity securities of
non-United States companies in Europe, Australia,
the Far East and other areas, including some
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective is to seek
long-term capital growth by investing primarily in equity securities of
companies in emerging markets countries such as those in Latin America,
Eastern Europe, the Pacific Basin, the Far East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity
securities of companies in the Pacific Basin and the Far East
(excluding Japan).
(Bullet) Nations Capital Growth Fund's investment objective is to seek
growth of capital by investing in companies that are believed to
have superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment objective is to seek
capital appreciation by investing in emerging growth companies that are
believed to have superior long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective is to seek
growth of capital by investing in companies that are expected to
produce significant increases in earnings per share.
(Bullet) Nations Equity Index Fund's investment objective is to seek
investment results that correspond before fees and expenses, to
the total return of the Standard & Poor's 500 Composite Stock
Price Index.
(Bullet) Balanced Fund:
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
3
<PAGE>
(Bullet) Bond Funds:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with modest
fluctuation of principal. The Fund will invest primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment
objective is to seek current income by investing
primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment
objective is to seek current income
consistent with minimal fluctuation of
principal. The Fund invests primarily in
short-term investment grade fixed income
securities.
(Bullet) Nations Diversified Income Fund's investment objective is to seek
current income consistent with total return by investing primarily
in a diversified portfolio of fixed income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment objective is to
seek total return by investing primarily in investment grade fixed
income securities. The Fund may invest in long-term, intermediate-term
and short-term securities.
(Bullet) Nations Global Government Income Fund's investment objective is to
maximize total return by investing primarily in high quality debt
securities issued by governments, banks and supranational entities
located throughout the world.
(Bullet) Investment Adviser: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to certain
of the Funds and Gartmore Global Partners provides sub-advisory
services to the other Funds. See "How The Funds Are Managed."
(Bullet) Dividends and Distributions: The Equity Funds and the Balanced Fund
declare and pay dividends from net investment income each calendar
quarter. The Money Market Funds and the Bond Funds declare dividends
daily and pay them monthly. Each Fund's net realized capital gains,
including net short-term capital gains are distributed at least
annually.
(Bullet) Risk Factors: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities, including U.S. Government
bonds, are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. The value of a Fund's investments in
debt securities 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Funds'
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund
are designed for long-term investors seeking international
diversification and who are willing to bear the risks associated with
international investing, such as foreign currency fluctuations and
economic and political risks. For a discussion of these factors, see
"How Objectives Are Pursued -- Special Risk Considerations Relevant to
an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund."
(Bullet) Minimum Purchase: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Primary A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
NATIONS FUND MONEY MARKET FUNDS PRIMARY A SHARES
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
<S> <C> <C>
Nations Prime Nations
Fund Treasury Fund
Sales Load Imposed on Purchases None None
Deferred Sales Load None None
<CAPTION>
Nations
Government
Money Market
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<S> <C> <C>
Management Fees (After Fee Waivers)1 .14% .14%
All Other Expenses (After Expense Reimbursements)1 .16% .16%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30% .30%
<CAPTION>
Management Fees (After Fee Waivers)1 .12%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .18%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)1 .30%
</TABLE>
1 See page 8 for a discussion of the actual expenses absent such fee waivers and
expense reimbursements.
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations
Nations Equity Nations Emerging
Value Income International Markets
Fund Fund Equity Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Pacific
Growth
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees .75% .70% .90% 1.10%
All Other Expenses (After Expense Reimbursements)1 .21% .20% .27% 1.03%
Total Operating Expenses (After Expense Reimbursements)1 .96% .90% 1.17% 2.13%
<CAPTION>
Management Fees .90%
<S> <C>
All Other Expenses (After Expense Reimbursements)1 .86%
Total Operating Expenses (After Expense Reimbursements)1 1.76%
</TABLE>
1 See page 8 for a discussion of the actual expenses absent such expense
reimbursements.
5
<PAGE>
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY A SHARES
Shareholder Transaction Expenses (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Nations Nations Nations
Capital Emerging Disciplined Equity
Growth Growth Equity Index
Fund Fund Fund Fund
Sales Load Imposed on Purchases None None None None
Deferred Sales Load None None None None
<CAPTION>
Nations
Balanced
Assets
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
Annual Fund Operating Expenses
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers)1 .75% .75% .75% .10%
All Other Expenses .21% .24% .27% .25%
Total Operating Expenses (After Fee Waivers)1 .96% .99% 1.02% .35%
<CAPTION>
Management Fees (After Fee Waivers)1 .75%
<S> <C>
All Other Expenses .25%
Total Operating Expenses (After Fee Waivers)1 1.00%
</TABLE>
1 See page 8 for a discussion of the actual expenses absent such fee waivers.
NATIONS FUND BOND FUNDS PRIMARY A SHARES
Shareholder Transaction Expenses
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations Short- Nations Nations Short-
Intermediate Government Term Nations Nations
Government Securities Income Diversified Strategic Fixed
Fund Fund Fund Income Fund Income Fund
Sales Load Imposed on Purchases None None None None None
Deferred Sales Load None None None None None
<CAPTION>
Nations
Global
Government
Income Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
Annual Fund
Operating Expenses
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C> <C>
Management Fees (After Fee Waivers)1 .40% .50% .30% .50% .50%
All Other Expenses (After Expense
Reimbursements)1 .23% .30% .25% .27% .22%
Total Operating Expenses (After Fee Waivers
and Expense Reimbursements)1 .63% .80% .55% .77% .72%
<CAPTION>
Management Fees (After Fee Waivers)1 .70%
<S> <C>
All Other Expenses (After Expense
Reimbursements)1 .62%
Total Operating Expenses (After Fee Waivers
and Expense Reimbursements)1 1.32%
</TABLE>
1 See page 8 for a discussion of the actual expenses absent such fee waivers and
expense reimbursements.
Examples:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
[CAPTION]
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nations
Government Nations Nations Nations
Nations Nations Money Nations Equity International Nations Pacific
Prime Treasury Market Value Income Equity Emerging Growth
Fund Fund Fund Fund Fund Fund Markets Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year $ 3 $ 3 $ 3 $ 10 $ 9 $ 12 $ 22 $ 18
3 Years $10 $10 $10 $ 31 $ 29 $ 37 $ 67 $ 55
5 Years $17 $17 $17 $ 53 $ 50 $ 64 $114 $ 95
10 Years $38 $38 $38 $118 $111 $142 $246 $207
<CAPTION>
Nations Nations
Capital Emerging
Growth Growth
Fund Fund
<S> <C> <C>
1 Year $ 10 $ 10
3 Years $ 31 $ 32
5 Years $ 53 $ 55
10 Years $118 $121
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Nations
Nations Nations Nations Short- Nations Nations Nations
Disciplined Equity Balanced Intermediate Government Short-Term Diversified
Equity Index Assets Government Securities Income Income
Fund Fund Fund Fund Fund Fund Fund
1 Year $ 10 $ 4 $ 10 $ 6 $ 8 $ 6 $ 8
3 Years $ 32 $11 $ 32 $20 $26 $18 $25
5 Years $ 56 $20 $ 55 $35 $44 $31 $43
10 Years $125 $44 $122 $79 $99 $69 $95
<CAPTION>
Nations Nations
Strategic Global
Fixed Government
Income Income
Fund Fund
1 Year $ 7 $13
3 Years $23 $42
5 Years $40 $72
10 Years $89 $159
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. Except for Nations
Emerging Markets Fund, Nations Global Government Income Fund and Nations Pacific
Growth Fund, which fees and expenses are based on estimates, certain figures
contained in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees," "All Other
Expenses" and "Total Operating Expenses" for Primary A Shares of the indicated
Fund would have been as follows: Nations Prime Fund -- .20%, .16% and .36%,
respectively; Nations Treasury Fund -- .20%, .16% and .36%, respectively;
Nations Government Money Market Fund -- .40%, .18% and .58%, respectively.
Absent fee waivers, "Management Fees" and "Total Operating Expenses" for Primary
A Shares of the indicated Fund would have been as follows: Nations Equity Index
Fund -- .50% and .75%, respectively; Nations Short-Intermediate Government
Fund -- .60% and .83%, respectively; Nations Government Securities Fund -- .64%
and .94%, respectively; and Nations Diversified Income Fund -- .60% and .87%,
respectively. Nations Strategic Fixed Income Fund -- .60% and .82%,
respectively; Nations Short-Term Income Fund -- .60% and .85%, respectively.
Absent expense reimbursements, "All Other Expenses" and "Total Operating
Expenses" for Primary A Shares of the indicated Fund would have been as follows:
Nations Equity Income Fund -- .22% and .92%, respectively; and Nations
International Equity Fund -- .26% and 1.16%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust, Nations Fund Inc. and Nations
Portfolios. Price Waterhouse LLP is the independent accountant to Nations Fund
Trust, Nations Fund, Inc. and Nations Portfolios. The reports of Price
Waterhouse LLP for the most recent fiscal years of Nations Fund Trust and
Nations Fund, Inc. accompany the financial statements for such periods and
are incorporated by reference in the SAIs, which are available upon request.
For more information see "Organization And History." Shareholders of a Fund
will receive unaudited semi-annual reports describing the Fund's investment
operations and annual financial statements audited by the Funds' independent
accountant.
7
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Prime Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0468 0.0519 0.0318 0.0328 0.0506
Dividends from net investment income (0.0468) (0.0519) (0.0318) (0.0328) (0.0506)
Total dividends and distributions (0.0468) (0.0519) (0.0318) (0.0328) (0.0506)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.79% 5.32% 3.22% 3.33% 5.19%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 2,472,469 $ 2,873,096 $ 2,883,762 $ 1,156,266 $ 500,476
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.30%
Ratio of net investment income to average
net assets 5.62%+ 5.23% 3.20% 3.25% 5.03%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.37%+ 0.38% 0.37% 0.36% 0.42%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0463 $ 0.0511 $ 0.0311 $ 0.0322 $ 0.0494
<CAPTION>
YEAR
ENDED
Primary A Shares 5/31/91
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0749
Dividends from net investment income (0.0749)
Total dividends and distributions (0.0749)
Net asset value, end of period $ 1.00
Total return++ 7.75%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 574,993
Ratio of operating expenses to average net
assets 0.30%
Ratio of net investment income to average
net assets 7.47%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.44%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0735
</TABLE>
Nations Prime Fund (cont.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
Primary A Shares 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0855 0.0839 0.0675
Dividends from net investment income (0.0855) (0.0839) (0.0675)
Total dividends and distributions (0.0855) (0.0839) (0.0675)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.88%+++ 8.71%+++ 6.94%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 433,298 $ 115,295 $ 264,063
Ratio of operating expenses to average net assets 0.32% 0.35% 0.36%
Ratio of net investment income to average net assets 8.43% 8.11% 6.73%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.50%+++ 0.55%+++ 0.56%+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0731+++ $ 0.0819+++ $ 0.0655+++
<CAPTION>
PERIOD
ENDED
Primary A Shares 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0277
Dividends from net investment income (0.0277)
Total dividends and distributions (0.0277)
Net asset value, end of period $ 1.00
Total return++ 2.79%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 252,562
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.99%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.65%+/+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0247+++
</TABLE>
* Nations Prime Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
8
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Treasury Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0458 0.0494 0.0297 0.0307 0.0483
Dividends from net investment income (0.0458) (0.0494) (0.0297) (0.0307) (0.0483)
Distribution from net realized capital
gains (0.0000)# (0.0000)# -- -- --
Total dividends and distributions (0.0458) (0.0494) (0.0297) (0.0307) (0.0483)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.67% 5.05% 2.99% 3.12% 4.95%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 821,030 $ 2,896,868 $ 2,679,992 $ 2,956,796 $1,094,741
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.29%
Ratio of net investment income to average
net assets 5.52%+ 4.99% 2.97% 3.02% 4.82%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.37%+ 0.35% 0.36% 0.36% 0.42%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0453 $ 0.0489 $ 0.0292 $ 0.0302 $ 0.0470
<CAPTION>
YEAR
ENDED
Primary A Shares 5/31/91
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0721
Dividends from net investment income (0.0721)
Distribution from net realized capital
gains --
Total dividends and distributions (0.0721)
Net asset value, end of period $ 1.00
Total return++ 7.46%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 955,186
Ratio of operating expenses to average net
assets 0.25%
Ratio of net investment income to average
net assets 7.04%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.43%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0703
</TABLE>
Nations Treasury Fund (cont.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
Primary A Shares 5/31/90 5/31/89 5/31/88
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0829 0.0802 0.0630
Dividends from net investment income (0.0829) (0.0802) (0.0630)
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.0829) (0.0802) (0.0630)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 8.61%+++ 8.33%+++ 6.49%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 392,843 $ 90,946 $ 111,414
Ratio of operating expenses to average net assets 0.25% 0.39% 0.38%
Ratio of net investment income to average net assets 8.18% 7.93% 6.31%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.59%+++ 0.58%++++ 0.65%+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0693+++ $ 0.0783+++ $ 0.0603+++
<CAPTION>
PERIOD
ENDED
Primary A Shares 5/31/87*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0262
Dividends from net investment income (0.0262)
Distributions from net realized capital gains --
Total dividends and distributions (0.0262)
Net asset value, end of period $ 1.00
Total return++ 2.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 66,221
Ratio of operating expenses to average net assets 0.35%+
Ratio of net investment income to average net assets 5.68%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.75%+/+++
Net investment income per share without waivers and/or expense
reimbursements $ 0.0222+++
</TABLE>
* Nations Treasury Fund Primary A Shares commenced operations on December 15,
1986.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
9
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Money Market Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0173 0.0558 0.0375 0.0294 0.0358
Distributions:
Dividends from net investment income (0.0173) (0.0558) (0.0375) (0.0294) (0.0358)
Distributions from net realized capital
gains -- -- (0.0000)# -- --
Total dividends and distributions (0.0173) (0.0558) (0.0375) (0.0294) (0.0358)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.74% 5.72% 3.84% 2.96% 3.63%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 336,771 $ 332,895 $ 432,729 $ 475,180 $ 414,412
Ratio of operating expenses to average net
assets 0.30%+ 0.30% 0.30% 0.30% 0.42%
Ratio of net investment income to average
net assets 5.20%+ 5.58% 3.79% 2.91% 3.55%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.59%+ 0.57% 0.59% 0.56% 0.58%
Net investment income per share without
waivers and/or expense reimbursements $ 0.0163 $ 0.0531 $ 0.0347 $ 0.0269 $ 0.0341
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/91*
Net asset value, beginning of period $ 1.00
Net investment income 0.0571
Distributions:
Dividends from net investment income (0.0571)
Distributions from net realized capital
gains --
Total dividends and distributions (0.0571)
Net asset value, end of period $ 1.00
Total return++ 5.87%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 333,979
Ratio of operating expenses to average net
assets 0.43%+
Ratio of net investment income to average
net assets 5.49%+
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.62%+
Net investment income per share without
waivers and/or expense reimbursements $ 0.0551
</TABLE>
* Nations Government Money Market Fund Primary A Shares commenced operations
on December 3, 1990.
+ Annualized.
++ Total return represents aggregate return for the periods indicated and does
not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001 per shares.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
10
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Value Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95 11/30/94
Operating performance:
Net asset value, beginning of period $ 16.21 $ 12.98 $ 13.74
Net investment income 0.07 0.27 0.24
Net realized and unrealized gain/(loss) on investments 1.06 3.91 (0.23)
Net increase/(decrease) in net asset value from operations 1.13 4.18 0.01
Distributions:
Dividends from net investment income (0.12) (0.28) (0.23)
Distributions from net realized capital gains (0.62) (0.67) (0.54)
Total dividends and distributions (0.74) (0.95) (0.77)
Net asset value, end of period $ 16.60 $ 16.21 $ 12.98
Total return++ 7.20% 34.53% (0.08)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 998,957 $ 956,669 $ 799,743
Ratio of operating expenses to average net assets 0.96% 0.94% 0.93%
Ratio of net investment income to average net assets 1.30%+ 1.90% 1.85%
Portfolio turnover rate 12% 63% 75%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.96% 0.94% 0.93%
Net investment income per share without waivers and/or expense
reimbursements $ 0.07 $ 0.27 $ 0.24
Average commission rate paid (b) $ 0.0698 N/A N/A
<CAPTION>
YEAR
ENDED
Primary A Shares 11/30/93
Operating performance:
Net asset value, beginning of period $ 12.45
Net investment income 0.24
Net realized and unrealized gain/(loss) on investments 1.38
Net increase/(decrease) in net asset value from operations 1.62
Distributions:
Dividends from net investment income (0.24)
Distributions from net realized capital gains (0.09)
Total dividends and distributions (0.33)
Net asset value, end of period $ 13.74
Total return++ 13.19%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 707,185
Ratio of operating expenses to average net assets 0.96
Ratio of net investment income to average net assets 1.98%
Portfolio turnover rate 64%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.97%
Net investment income per share without waivers and/or expense
reimbursements $ 0.24
Average commission rate paid (b) N/A
</TABLE>
Nations Value Fund (cont.)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR YEAR YEAR
ENDED ENDED ENDED
Primary A Shares 11/30/92 11/30/91 11/30/90
Operating performance:
Net asset value, beginning of period $ 11.16 $ 9.71 $ 10.04
Net investment income 0.28 0.34 0.35
Net realized and unrealized gain/(loss) on investments 1.57 1.47 (0.36)
Net increase/(decrease) in net asset from value operations 1.85 1.81 (0.01)
Distributions:
Dividends from net investment income (0.27) (0.36) (0.32)
Distributions from net realized capital gains (0.29) -- --
Total dividends and distributions (0.56) (0.36) (0.32)
Net asset value, end of period $ 12.45 $ 11.16 $ 9.71
Total return++ 17.00%+++ 18.79%+++ (0.16)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 282,138 $ 82,360 $ 19,769
Ratio of operating expenses to average net assets 0.90% 0.53% 0.21%
Ratio of net investment income to average net assets 2.31% 3.33% 4.19%
Portfolio turnover rate 60% 51% 24%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.97% 0.99% 1.11%
Net investment income per share without waivers and/or expense
reimbursements $ 0.27 $ 0.30 $ 0.26
Average commission rate paid (b) N/A N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/89*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on investments (0.04)
Net increase/(decrease) in net asset from value operations 0.04
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.04
Total return++ 0.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,161
Ratio of operating expenses to average net assets 0.49%+
Ratio of net investment income to average net assets 4.41%+
Portfolio turnover rate --
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.41%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.06
Average commission rate paid (b) N/A
</TABLE>
* Nations Value Fund Primary A Shares commenced operations on September 19,
1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
11
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Equity Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92
Operating performance:
Net asset value, beginning of period $ 11.81 $ 11.43 $ 12.06 $ 11.41 $ 10.19
Net investment income 0.30 0.42 0.38 0.37 0.34
Net realized and unrealized gain on
investments 1.77 1.11 0.22 1.08 1.25
Net increase in net asset value from
operations 2.07 1.53 0.60 1.45 1.59
Distributions:
Dividends from net investment income (0.37) (0.42) (0.42) (0.35) (0.30)
Distributions from net realized capital
gains (0.37) (0.73) (0.81) (0.45) (0.07)
Total dividends and distributions (0.74) (1.15) (1.23) (0.80) (0.37)
Net asset value, end of period $ 13.14 $ 11.81 $ 11.43 $ 12.06 $ 11.41
Total return++ 17.98% 14.79% 5.00% 13.30% 15.91%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 283,142 $ 283,082 $ 225,740 $ 175,949 $ 18,104
Ratio of operating expenses to average net
assets 0.90%+ 0.92% 0.94% 0.92% 1.10%
Ratio of net investment income to average
net assets 2.84%+ 3.75% 3.41% 3.37% 3.15%
Portfolio turnover rate 59% 158% 116% 55% 84%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.90%+ 0.93% 0.95% 1.04% 2.21%
Net investment income/loss per share
without waivers and/or expense
reimbursements $ 0.30 $ 0.42 $ 0.38 $ 0.36 $ 0.22
Average commission rate paid (b) $ 0.0287 N/A N/A N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 5/31/91*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain on
investments 0.14
Net increase in net asset value from
operations 0.19
Distributions:
Dividends from net investment income --
Distributions from net realized capital
gains --
Total dividends and distributions --
Net asset value, end of period $ 10.19
Total return++ 1.90%+++
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 10,194
Ratio of operating expenses to average net
assets 1.12%+
Ratio of net investment income to average
net assets 3.66%+
Portfolio turnover rate 9%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.80%+
Net investment income/loss per share
without waivers and/or expense
reimbursements $ (0.06)
Average commission rate paid (b) N/A
</TABLE>
* Nations Equity Income Fund Primary A Shares commenced operations on April
11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
12
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations International Equity Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a)# 05/31/95# 5/31/94# 5/31/93#
Operating performance:
Net asset value, beginning of period $ 11.75 $ 12.06 $ 10.60 $ 10.40
Net investment income/(loss) 0.07 0.14 0.09 0.09
Net realized and unrealized gain/(loss) on investments 1.80 (0.20) 1.44 0.21
Net increase/(decrease) in net asset value from
operations 1.87 (0.06) 1.53 0.30
Distributions:
Dividends from net investment income (0.06) (0.03) (0.05) (0.08)
Distributions in excess of net investment income (0.04) -- -- --
Distributions from net realized capital gains (0.02) (0.12) (0.02) (0.02)
Distributions in excess of net realized capital gains -- (0.10) -- --
Total dividends and distributions (0.12) (0.25) (0.07) (0.10)
Net asset value, end of period $ 13.50 $ 11.75 $ 12.06 $ 10.60
Total return++ 16.01% (0.46)% 14.37% 3.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 849,731 $ 572,940 $ 401,599 $ 118,873
Ratio of operating expenses to average net assets 1.17%+ 1.03% 1.17% 1.30%
Ratio of net investment income/(loss) to average net
assets 0.65%+ 1.17% 0.75% 1.03%
Portfolio turnover rate 26% 92% 39% 41%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.18%+ 1.04% 1.18% 1.32%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.07 $ 0.14 $ 0.08 $ 0.10
Average commission rate paid (b) 0.0272 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 5/31/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.08
Net realized and unrealized gain/(loss) on investments 0.36
Net increase/(decrease) in net asset value from
operations 0.44
Distributions:
Dividends from net investment income (0.04)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Distributions in excess of net realized capital gains --
Total dividends and distributions (0.04)
Net asset value, end of period $ 10.40
Total return++ 4.43%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 83,970
Ratio of operating expenses to average net assets 1.33%+
Ratio of net investment income/(loss) to average net
assets 1.81%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.43%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.03
Average commission rate paid (b) N/A
</TABLE>
* Nations International Equity Fund Primary A Shares commenced operations on
December 2, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
Nations Emerging Markets Fund
<TABLE>
<CAPTION>
<S> <C>
Primary A Shares
Operating performance:
Net asset value, beginning of period
Net investment income/(loss)
Net realized and unrealized gain on investments
Net increase in net asset value from operations
Distributions:
Dividends from net investment income
Distributions in excess of net investment income
Distributions from net realized capital gains
Total dividends and distributions
Net asset value, end of period
Total return++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)
Ratio of operating expenses to average net assets
Ratio of net investment income to average net assets
Portfolio turnover rate
Average commission rate paid (a)
<CAPTION>
PERIOD
ENDED
Primary A Shares 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 0.37
Net increase in net asset value from operations 0.34
Distributions:
Dividends from net investment income --
Distributions in excess of net investment income 0.00**
Distributions from net realized capital gains --
Total dividends and distributions 0.00**
Net asset value, end of period $ 10.34
Total return++ 3.42%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 47,560
Ratio of operating expenses to average net assets 2.13%+
Ratio of net investment income to average net assets (0.38)%
+
Portfolio turnover rate 17%
Average commission rate paid (a) $ 0.0004
</TABLE>
* Nations Emerging Markets Fund Primary A Shares commenced operations on June
30, 1995.
** Amount represents less than $0.01 per share.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
13
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Pacific Growth Fund
<TABLE>
<CAPTION>
<S> <C>
Primary A Shares
Operating performance:
Net asset value, beginning of period
Net investment income/(loss)
Net realized and unrealized gain/(loss) on investments
Net increase/(decrease) in net asset value from operations
Distributions:
Dividends from net investment income
Total dividends and distributions
Net asset value, end of period
Total return++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)
Ratio of operating expenses to average net assets
Ratio of net investment income/(loss) to average net assets
Portfolio turnover rate
Average commission rate paid (a)
<CAPTION>
PERIOD
ENDED
Primary A Shares 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.02)
Net realized and unrealized gain/(loss) on investments 0.29
Net increase/(decrease) in net asset value from operations 0.27
Distributions:
Dividends from net investment income --
Total dividends and distributions (0.03)
Net asset value, end of period $ 10.24
Total return++ 2.66%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 95,210
Ratio of operating expenses to average net assets 1.76%+
Ratio of net investment income/(loss) to average net assets (0.27)%
+
Portfolio turnover rate 23%
Average commission rate paid (a) $ 0.0178
</TABLE>
* Nations Pacific Growth Fund Primary A Shares commenced operations on June 30,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the average shares method, which
more appropriately presents the per share data for the period, since the use
of the undistributed income method did not accord with the results of
operations.
(a) Average commission rate paid per share of securities purchased and sold by
the Fund.
<TABLE>
<CAPTION>
Nations Capital Growth Fund
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 14.24 $ 11.23 $ 11.08 $ 10.68
Net investment income/(loss) 0.02 0.09 0.09 0.09
Net realized and unrealized gain on investments 0.38 3.28 0.14 0.42
Net increase in net asset value from operations 0.40 3.37 0.23 0.51
Distributions:
Dividends from net investment income (0.02) (0.10) (0.08) (0.10)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (1.21) (0.36) (0.08) (0.11)
Net asset value, end of period $ 13.43 $ 14.24 $ 11.23 $ 11.08
Total return++ 3.14% 30.96% 2.14% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 839,300 $ 867,361 $ 717,914 $ 646,661
Ratio of operating expenses to average net assets 0.96%+ 0.98% 0.90% 0.80%
Ratio of net investment income/(loss) to average net
assets 0.38%+ 0.71% 0.85% 0.84%
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.96%+ 0.98% 0.91% 0.89%
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.02 $ 0.09 $ 0.09 $ 0.08
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.02
Net realized and unrealized gain on investments 0.66#
Net increase in net asset value from operations 0.68
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.68
Total return++ 6.80%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 728,629
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income/(loss) to average net
assets 1.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.05%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.01
Average commission rate paid (c) N/A
</TABLE>
* Nations Capital Growth Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market values of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Value represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
14
<PAGE>
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Emerging Growth Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
Primary A Shares 03/31/96#(a) 11/30/95 11/30/94#
Operating performance:
Net asset value, beginning of period $ 14.28 $ 11.41 $ 10.87
Net investment income/(loss) (0.00)(b) 0.01 (0.03)
Net realized and unrealized gain on investments 1.26 3.26 0.71
Net increase in net asset value from operations 1.26 3.27 0.68
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14)
Total dividends and distributions (1.50) (0.40) (0.14)
Net asset value, end of period $ 14.04 $ 14.28 $ 11.41
Total return++ 9.87% 29.95% 6.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 295,764 $ 269,484 $ 182,459
Ratio of operating expenses to average net assets 0.99%+ 0.98% 1.01%
Ratio of net investment income/(loss) to average net assets (0.06)%+ 0.08% (0.29)%
Portfolio turnover rate 39% 139% 1.29%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.99%+ 0.98% 1.01%
Net investment income/(loss) per share without waivers and/or expense
reimbursements $ (0.00)(b) $ 0.01 $ (0.03)
Average commission rate paid (c) $ 0.0599 N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.01)
Net realized and unrealized gain on investments 0.89
Net increase in net asset value from operations 0.88
Distributions:
Distributions from net realized capital gains (0.01)
Total dividends and distributions (0.01)
Net asset value, end of period $ 10.87
Total return++ 8.81%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 121,281
Ratio of operating expenses to average net assets 0.80%+
Ratio of net investment income/(loss) to average net assets (0.15)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.01%+
Net investment income/(loss) per share without waivers and/or expense
reimbursements $ (0.03)
Average commission rate paid (c) N/A
</TABLE>
* Nations Emerging Growth Fund Primary A Shares commenced operations on
December 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
15
<PAGE>
Nations Disciplined Equity Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR PERIOD PERIOD
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95 11/30/94* 04/29/94*
Operating performance:
Net asset value, beginning of period $ 17.06 $ 13.08 $ 13.31 $ 13.65
Net investment income/(loss) 0.05 0.10 0.01 (0.05)
Net realized and unrealized gain/(loss) on investments 0.35 3.96 (0.23)# 2.66
Net increase/(decrease) in net asset value from
operations 0.40 4.06 (0.22) 2.61
Distributions:
Dividends from net investment income (0.04) (0.08) (0.01) --
Distributions from net realized capital gains (0.23) -- -- (2.95)
Return of capital -- -- (0.00)(b) --
Total dividends and distributions (0.27) (0.08) (0.01) (2.95)
Net asset value, end of period $ 17.19 $ 17.06 $ 13.08 $ 13.31
Total return++ 2.44% 31.13% (1.62)% 18.79%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 116,469 $ 109,939 $ 9,947 $ 8,079
Ratio of operating expenses to average net assets 1.02%+ 1.30% 1.13%+ 1.20%+
Ratio of net investment income/(loss) to average net
assets 0.82%+ 0.85% 0.12%+ (0.60)%+
Portfolio turnover rate 47% 124% 177% 475%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.02%+ 1.30% 1.56%+ 1.53%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.05 $ 0.10 $ (0.03) $ (0.08)
Average commission rate paid (c) $ 0.0627 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 04/30/93*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.03)
Net realized and unrealized gain/(loss) on investments 3.74
Net increase/(decrease) in net asset value from
operations 3.71
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains (0.06)
Return of capital --
Total dividends and distributions (0.06)
Net asset value, end of period $ 13.65
Total return++ 37.13%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,638
Ratio of operating expenses to average net assets 1.20%+
Ratio of net investment income/(loss) to average net
assets (0.58)%+
Portfolio turnover rate 203%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.31%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.03)
Average commission rate paid (c) N/A
</TABLE>
* The period for Nations Disciplined Equity Fund Primary A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class A Shares, which were reorganized into Primary A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class A Shares commenced operations on October 1, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
16
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Equity Index Fund
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of period $ 12.91 $ 9.84
Net investment income 0.08 0.28
Net realized and unrealized gain/(loss) on investments 0.86 3.20
Net increase in net asset value from operations 0.94 3.48
Distributions:
Dividends from net investment income (0.13) (0.28)
Distributions from net realized capital gains (0.14) (0.13)
Total dividends and distributions (0.27) (0.41)
Net asset value, end of period $ 13.58 $ 12.91
Total return++ 7.33% 36.35%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 192,388 $ 145,021
Ratio of operating expenses to average net assets 0.35%+ 0.37%
Ratio of operating expenses to average net assets including interest expense 0.35%+ 0.38%
Ratio of net investment income to average net assets 1.99%+ 2.44%
Portfolio turnover rate 2% 18%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements $ 0.73%+ 0.78%
Net investment income per share without waivers and/or expense reimbursements $ 0.07 $ 0.23
Average commission to be paid (b) $ 0.0291 N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.24
Net realized and unrealized gain/(loss) on investments (0.21)
Net increase in net asset value from operations 0.03
Distributions:
Dividends from net investment income (0.19)
Distributions from net realized capital gains --
Total dividends and distributions (0.19)
Net asset value, end of period $ 9.84
Total return++ 0.29%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 123,147
Ratio of operating expenses to average net assets 0.35%+
Ratio of operating expenses to average net assets including interest expense --
Ratio of net investment income to average net assets 2.64%+
Portfolio turnover rate 14%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.79%+
Net investment income per share without waivers and/or expense reimbursements $ 0.20
Average commission to be paid (b) N/A
</TABLE>
* Nations Equity Index Fund Primary A Shares commenced operations on December
15, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
Nations Balanced Assets Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 12.68 $ 10.44 $ 10.87 $ 10.24
Net investment income 0.11 0.38 0.25 0.29
Net realized and unrealized gain/(loss) on investments 0.45 2.21 (0.43) 0.64
Net increase/(decrease) in net asset value from
operations 0.56 2.59 (0.18) 0.93
Distributions:
Dividends from net investment income (0.18) (1.33) (0.25) (0.03)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.59) (0.35) (0.25) (0.30)
Net asset value, end of period $ 11.65 $ 12.68 $ 10.44 $ 10.87
Total return++ 4.90% 25.27% (1.73)% 9.22%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 164,215 $ 163,198 $ 162,215 $ 178,270
Ratio of operating expenses to average net assets 1.00 %+ 0.99 % 0.98 % 0.90%
Ratio of net investment income to average net assets 2.91 %+ 3.25 % 2.31 % 2.82%
Portfolio turnover rate 83 % 174 % 156 % 50%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.00 %+ 0.99 % 0.99 % 0.97%
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.38 $ 0.25 $ 0.29
Average commission rate paid (b) $ 0.0598 N/A N/A N/A
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments 0.18#
Net increase/(decrease) in net asset value from
operations 0.24
Distributions:
Dividends from net investment income
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 111,953
Ratio of operating expenses to average net assets 0.30%+
Ratio of net investment income to average net assets 3.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.05%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.05
Average commission rate paid (b) N/A
</TABLE>
* Nations Balanced Assets Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
17
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Short-Intermediate Government Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a)# 11/30/95# 11/30/94 11/30/93 11/30/92
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17
Net investment income 0.07 0.24 0.23 0.23 0.28
Net realized and unrealized gain/(loss) on
investments (0.07) 0.21 (0.33) 0.14 (0.01)
Net increase/(decrease) in net asset value from
operations 0.00 0.45 (0.10) 0.37 0.27
Distributions:
Dividends from net investment income (0.07) (0.24) (0.23) (0.23) (0.28)
Distributions in excess of net investment income (0.00)(b) (0.00)(a) (0.00)(a) -- --
Distributions from net realized capital gains -- -- (0.02) (0.02) --
Total dividends and distributions (0.07) (0.24) (0.25) (0.25) (0.28)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ 0.07% 11.70% (2.23)% 9.03% 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 399,915 $ 425,200 $ 433,278 $ 443,426 $ 360,497
Ratio of operating expenses to average net assets 0.63%+ 0.60% 0.59% 0.55% 0.37%
Ratio of net investment income to average net
assets 5.32%+ 5.88% 5.76% 5.40% 6.48%
Portfolio turnover rate 189% 328% 133% 92% 25%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.86%+ 0.80% 0.80% 0.79% 0.77%
Net investment income per share without waivers
and/or expense reimbursements $ 0.06 $ 0.23 $ 0.22 $ 0.22 $ 0.26
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/91*
Operating performance:
Net asset value, beginning of period $ 4.00##
Net investment income 0.10
Net realized and unrealized gain/(loss) on
investments 0.17
Net increase/(decrease) in net asset value from
operations 0.27
Distributions:
Dividends from net investment income (0.10)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.10)
Net asset value, end of period $ 4.17
Total return++ 6.81%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 158,435
Ratio of operating expenses to average net assets 0.08%+
Ratio of net investment income to average net
assets 7.21%+
Portfolio turnover rate 11%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.82%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.00 (a)
</TABLE>
* Nations Short-Intermediate Government Fund Primary A Shares commenced
operations on August 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share method
which more appropriately presents the per share data for the period since the
use of the undistributed income method did not accord with the results of
operations.
## The Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25, 1991,
the net asset value doubled as a result of the reclassification of each
outstanding share into half as many shares (reverse split).
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01.
18
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Government Securities Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a)# 05/31/95# 05/31/94 05/31/93#
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.36
Net investment income 0.52 0.64 0.64 0.71
Net realized and unrealized gain/(loss) on
investments (0.19) 0.06 (0.61) 0.13
Net increase/(decrease) in net asset value from
operations 0.33 0.70 0.03 0.84
Distributions:
Dividends from net investment income (0.50) (0.60) (0.58) (0.70)
Dividends in excess of net investment income (0.02) -- (0.02) --
Distributions from net realized capital gains -- -- -- --
Distributions in excess of net realized capital
gains -- -- (0.05) (0.04)
Distributions from capital -- (0.04) (0.04) --
Total dividends and distributions (0.52) (0.64) (0.69) (0.74)
Net asset value, end of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Total return++ 3.41% 7.55% 0.06% 8.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 55,962 $ 39,909 $ 44,536 $ 40,472
Ratio of operating expenses to average net assets 0.80%+ 0.76% 0.73% 0.85%
Ratio of net investment income to average net
assets 6.36%+ 6.69% 6.08% 6.67%
Portfolio turnover rate 199% 413% 56% 103%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.95%+ 0.94% 0.94% 1.00%
Net investment income per share without waivers
and/or expense reimbursements $ 0.51 $ 0.62 $ 0.61 $ 0.60
<CAPTION>
YEAR PERIOD
ENDED ENDED
Primary A Shares 05/31/92 05/31/91*
Operating performance:
Net asset value, beginning of period $ 10.05 $ 10.00
Net investment income 0.74 0.10
Net realized and unrealized gain/(loss) on
investments 0.37 0.02
Net increase/(decrease) in net asset value from
operations 1.11 0.12
Distributions:
Dividends from net investment income (0.77) (0.07)
Dividends in excess of net investment income -- --
Distributions from net realized capital gains -- --
Distributions in excess of net realized capital
gains (0.03) --
Distributions from capital -- --
Total dividends and distributions (0.80) (0.07)
Net asset value, end of period $ 10.36 $ 10.05
Total return++ 11.43%+++ 1.19%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 42,256 $ 10,047
Ratio of operating expenses to average net assets 1.06% 1.10%+
Ratio of net investment income to average net
assets 7.15% 7.18%+
Portfolio turnover rate 130% 5%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.72% 1.69%+++
Net investment income per share without waivers
and/or expense reimbursements $ 0.07 $ 0.09+++
</TABLE>
* Nations Government Securities Fund Primary A Shares commenced operations on
April 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
19
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
Nations Short-Term Income Fund
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a)# 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.20 0.61 0.50 0.53
Net realized and unrealized gain/(loss) on investments (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value from
operations 0.12 0.97 (0.01) 0.79
Distributions:
Dividends from net investment income (0.20) (0.61) (0.48) (0.53)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.20) (0.61) (0.52) (0.53)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.19% 10.48% (0.11)% 8.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 179,957 $ 169,291 $ 176,712 $ 201,738
Ratio of operating expenses to average net assets 0.55 %+ 0.56 %+ 0.50 % 0.37%
Ratio of net investment income to average net assets 6.07 %+ 6.32 %+ 5.23 % 5.27%
Portfolio turnover rate 73 % 224 % 293 % 121%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.88 %+ 0.86 %+ 0.82 % 0.79%
Net investment income per share without waivers and/or
expense reimbursements $ 0.19 $ 0.58 $ 0.47 $ 0.48
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.09
Net realized and unrealized gain/(loss) on investments (0.25)
Net increase/(decrease) in net asset value from
operations (0.16)
Distributions:
Dividends from net investment income (0.09)
Distributions in excess of net investment income --
Distributions from capital --
Total dividends and distributions (0.09)
Net asset value, end of period $ 9.75
Total return++ (1.58)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 190,680
Ratio of operating expenses to average net assets 0.30 %+
Ratio of net investment income to average net assets 5.54 %+
Portfolio turnover rate 45 %
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.90 %+
Net investment income per share without waivers and/or
expense reimbursements $ 0.08
</TABLE>
* Nations Short-Term Income Fund Primary A Shares commenced operations on
September 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Nations Diversified Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED YEAR
Primary A Shares 03/31/96(a) 11/30/95 11/30/94# ENDED 11/30/93#
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 9.97
Net investment income 0.23 0.73 0.74 0.78
Net realized and unrealized gain/(loss) on investments (0.40) 1.15 (1.06) 0.91
Net increase/(decrease) in net asset value from
operations (0.17) 1.88 (0.32) 1.69
Distributions:
Dividends from net investment income (0.23) (0.73) (0.74) (0.78)
Distributions in excess of net investment income -- -- (0.00)(b) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.23) (0.73) (0.89) (0.78)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.59)% 20.11% (3.05)% 17.40%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 65,081 $ 64,800 $ 22,298 $ 28,553
Ratio of operating expenses to average net assets 0.77%+ 0.80% 0.74% 0.55%
Ratio of net investment income to average net assets 6.49%+ 7.03% 7.31% 7.02%
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.87%+ 0.93% 0.95% 0.95%
Net investment income per share without waivers and/or
expense reimbursements $ 0.23 $ 0.72 $ 0.72 $ 0.70
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.06
Net realized and unrealized gain/(loss) on investments (0.03)
Net increase/(decrease) in net asset value from
operations 0.03
Distributions:
Dividends from net investment income (0.06)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.06)
Net asset value, end of period $ 9.97
Total return++ 0.32%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23,962
Ratio of operating expenses to average net assets 0.25%+
Ratio of net investment income to average net assets 7.76%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 0.85%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.05
</TABLE>
* Nations Diversified Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately represents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01.
20
<PAGE>
FOR A PRIMARY A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
Nations Strategic Fixed Income Fund
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
Primary A Shares 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.19 0.59 0.53 0.56
Net realized and unrealized gain/(loss) on investments (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value from
operations (0.10) 1.49 (0.36) 1.18
Distributions:
Dividends from net investment income (0.19) (0.59) (0.51) (0.56)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.19) (0.59) (0.87) (0.57)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.04)% 16.45% (3.58)% 12.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 823,890 $ 823,098 $ 550,697 $ 545,538
Ratio of operating expenses to average net assets 0.72%+ 0.71%+ 0.68% 0.61%
Ratio of net investment income to average net assets 5.49%+ 6.05%+ 5.43% 5.40%
Portfolio turnover rate 133% 228% 307% 161%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.83%+ 0.81%+ 0.76% 0.77%
Net investment income per share without waivers and/or
expense reimbursements $ 0.19 $ 0.58 $ 0.52 $ 0.55
<CAPTION>
PERIOD
ENDED
Primary A Shares 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.05
Net realized and unrealized gain/(loss) on investments (0.06)
Net increase/(decrease) in net asset value from
operations (0.01)
Distributions:
Dividends from net investment income (0.05)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.05)
Net asset value, end of period $ 9.94
Total return++ (0.11)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 581,329
Ratio of operating expenses to average net assets 0.26%+
Ratio of net investment income to average net assets 6.15%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 0.86%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.04
</TABLE>
* Nations Strategic Fixed Income Fund Primary A Shares commenced operations on
October 30, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Nations Global Government Income Fund
<TABLE>
<CAPTION>
<S> <C>
Primary A Shares
Operating performance:
Net asset value, beginning of period
Net investment income/(loss)
Net realized and unrealized gain/(loss) on investments
Net increase in net asset value from operations
Distributions:
Dividends from net investment income
Distributions in excess of net investment income
Distributions from net realized capital gains
Total dividends and distributions
Net asset value, end of period
Total return++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's)
Ratio of operating expenses to average net assets
Ratio of net investment income/(loss) to average net assets
Portfolio turnover rate
<CAPTION>
PERIOD
ENDED
Primary A Shares 03/31/96*#
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.39
Net realized and unrealized gain/(loss) on investments 0.11
Net increase in net asset value from operations 0.50
Distributions:
Dividends from net investment income (0.37)
Distributions in excess of net investment income (0.02)
Distributions from net realized capital gains (0.04)
Total dividends and distributions (0.43)
Net asset value, end of period $ 10.07
Total return++ 5.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 24,753
Ratio of operating expenses to average net assets 1.32%
+
Ratio of net investment income/(loss) to average net assets 5.17%
+
Portfolio turnover rate 213%
</TABLE>
* Nations Global Government Income Fund Primary A Shares commenced operations
on June 30, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately represents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
21
<PAGE>
Objectives
Money Market Funds:
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
Nations Prime Fund: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
Nations Treasury Fund: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
Nations Government Money Market Fund: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
Equity Funds:
Nations Value Fund: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
Nations Equity Income Fund: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
Nations International Equity Fund: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
Nations Emerging Markets Fund: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
Nations Pacific Growth Fund: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
Nations Capital Growth Fund: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
Nations Emerging Growth Fund: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
Nations Disciplined Equity Fund: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
Nations Equity Index Fund: Nations Equity Index Fund's investment objective is
to seek investment results that correspond, before fees and expenses, to the
total return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index" or the "Index").(1) The Fund is not managed according to traditional
methods of "active" investment management, which involve the buying and selling
of securities based upon economic, financial, and market analyses and investment
judgment. Instead, the Fund, utilizing a "passive" or "indexing" investment
approach, attempts to duplicate the performance of the S&P 500 Index.
Balanced Fund:
Nations Balanced Assets Fund: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
Bond Funds:
Nations Short-Intermediate Government Fund: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
Nations Government Securities Fund: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
Nations Short-Term Income Fund: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities. The Fund's
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation("S&P").
22
<PAGE>
investment program attempts to maintain a higher level of income than normally
provided by money market instruments, and more price stability than investments
in intermediate and long-term bonds. However, the value of the Fund's portfolio
generally will vary inversely with changes in prevailing interest rates.
Nations Diversified Income Fund: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities.
Nations Strategic Fixed Income Fund: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing primarily in
investment grade fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
Nations Global Government Income Fund: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
How Objectives Are Pursued
Money Market Funds:
Nations Prime Fund: In pursuing its investment objective, 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") and other obligations issued
or guaranteed as to payment of principal and interest by the U.S. Government,
its agencies or instrumentalities ("U.S. Government Obligations"). Some U.S.
Government Obligations are backed by the full faith and credit of the U.S.
Treasury, such as direct pass-through certificates of the Government National
Mortgage Association ("GNMA"). Some are supported by the right of the issuer to
borrow from the U.S. Government, such as obligations of Federal Home Loan Banks,
and some are backed only by the credit of the issuer itself, such as obligations
of the Federal National Mortgage Association ("FNMA"). U.S. Government
Obligations also include U.S. Treasury Obligations, which differ only in their
interest rates, maturities and time of issuance. The Fund also may invest in
bank and commercial instruments that may be available in the money markets, high
quality short-term taxable obligations issued by state and local governments,
their agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified First Tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and in instruments issued by trusts or certain partnerships, including
pass-through certificates representing participations in, or debt instruments
such backed by, the securities and other assets owned by trusts or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
Nations Treasury Fund: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in obligations the
principal and interest of which are backed by the full faith and credit of the
United States Government, provided that such Fund shall, under normal market
conditions, invest at least 65% of its total assets in U.S. Treasury bills,
notes and bonds and other instruments issued directly by the U.S. Government.
The Fund also may lend its portfolio securities to qualified institutional
investors. For more information concerning these instruments, see "Appendix A."
Nations Government Money Market Fund: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For more information
concerning these instruments, see "Appendix A."
Equity Funds:
Nations Value Fund: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability, and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
23
<PAGE>
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower
price/earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. The Adviser will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks.
The Fund invests under normal market conditions at least 65% of its total assets
in common stocks. In addition to common stocks, the Fund also may invest in
preferred stocks, securities convertible into common stock and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. See "Appendix
A -- Foreign Securities." The Fund also may hold up to 20% of its total assets
in U.S. Government Obligations, and investment grade securities of domestic
companies. Obligations with the lowest investment grade rating (e.g. rated "BBB"
by Standard & Poor's Corporation ("S&P") or "Baa" by Moody's Investors Service,
Inc. ("Moody's")) have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the 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.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant.
Nations Equity Income Fund: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (i.e., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate and government and municipal bonds of various
maturities), preferred stocks and warrants. The Fund may invest in debt
securities that are considered investment grade (e.g. securities rated in one of
the top four investment categories by S&P or Moody's, or if not rated, are of
equivalent investment quality as determined by the Adviser). Obligations rated
in the lowest of the top four investment grade rating categories (e.g., rated
"BBB" by S&P) have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (e.g. rated "BB" by S&P) or if not rated,
are of equivalent investment quality as determined by the Adviser.
Non-investment grade debt securities are sometimes referred to as "high yield
bonds" or "junk bonds," tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although
24
<PAGE>
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
Nations International Equity Fund: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies in the Far
East and Western Europe as well as Australia, Canada, and other areas (including
developing countries). Under unusual circumstances, however, the Fund may invest
substantially all of its assets in companies in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that the
Adviser believes have potential for growth of capital. The Fund may invest up to
35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers and securities of foreign investment
funds or trusts. For additional information concerning the Fund's investment
practices, see "Appendix A."
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. The Adviser seeks to identify and invest in those
emerging markets that have a relatively low gross national product per capita,
compared to the world's major economies, and which exhibit potential for rapid
economic growth. The Adviser believes that investment in equity securities of
emerging market issuers offers significant potential for long-term capital
appreciation.
Emerging Markets include, but are not limited to: Argentina, Brazil, Chile,
China, Czech Republic, Colombia, Ecuador, Greece, Hong Kong, Indonesia, India,
Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia, Singapore,
South Africa, Thailand, Taiwan and Turkey.
Nations Emerging Markets Fund: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
equity securities of companies in emerging markets. A company will be considered
in a country, market or region if it conducts its principal business activities
in the country, market or region. A company will be considered to conduct its
principal business activities in a country, market or region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such country,
market or region or has at least 50% of its assets situated in such country,
market or region.
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's or S&P or, if unrated, determined by
the Adviser to be comparable in quality to instruments so rated. Obligations
with the lowest investment grade rating (e.g., rated "Baa" by Moody's or "BBB"
by S&P) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. When allocating investments among individual countries, the
Adviser will consider various criteria, such as the relative economic growth
potential of the various economies and securities markets, expected levels of
inflation, government policies influencing business conditions and the outlook
for currency relationships.
25
<PAGE>
The 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 and forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the Commodity Future's Trading Commission ("CFTC") and options thereon for
market exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
Nations Pacific Growth Fund: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. The Pacific Basin and Far
East include Australia, Hong Kong, India, Indonesia, South Korea, Malaysia, New
Zealand, Pakistan, the People's Republic of China, the Philippines, Singapore,
Sri Lanka, Taiwan and Thailand and may include other markets that develop in the
region. The Fund will not invest in securities of issuers in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (e.g., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. When allocating investments among individual countries, The
Adviser will consider various criteria, such as the relative economic growth
potential of the various economies and securities markets, expected levels of
inflation, government policies influencing business conditions and the outlook
for currency relationships. The Fund may invest in ADRs, GDRs, EDRs and ADSs.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
Nations Capital Growth Fund: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
types of companies:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, elec-
26
<PAGE>
tronics, specialty merchandising and health service industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (i.e., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Through intensive research, visits to many companies each year and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
Nations Emerging Growth Fund: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above-average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities.
Nations Disciplined Equity Fund: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Fund seeks to provide investors with long-term
capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities
27
<PAGE>
and various money market instruments. The Fund will invest primarily in medium-
and large-sized companies (i.e. companies with market capitalizations of $500
million or greater) that are determined to have favorable price/earnings ratios.
The Fund also may invest in securities issued by companies with market
capitalizations of less than $500 million. The volatility of
small-capitalization stocks is typically greater than that of larger companies.
To help reduce risk, the Fund will invest in the securities of companies
representing a broad range of industries and economic sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (e.g. securities rated in
one of the top four investment categories by an NRSRO or, if not rated, are of
equivalent quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments and
money market instruments.
Nations Equity Index Fund: Under normal conditions, the Fund will invest at
least 80% of its assets in equity securities of companies which compose the S&P
500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and its
current price. In seeking to duplicate the performance of the S&P 500 Index, the
Adviser will attempt to allocate the Fund's portfolio among common stocks in
approximately the same weightings as the S&P 500 Index, beginning with the
heaviest weighted stocks that make up a larger portion of the Index's value.
The Adviser generally will seek to match the composition of the S&P 500 Index as
closely as possible, but may not always invest the Fund's portfolio to mirror
the Index exactly. Because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 Index stocks and may at times have its portfolio
weighted differently from the S&P 500 Index. The Fund may omit or remove an S&P
500 Index stock from its portfolio if, following objective criteria, the Adviser
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. The Adviser may purchase stocks that are not included in the S&P 500
Index to compensate for these differences if it believes that their prices will
move together with the prices of S&P 500 Index stocks omitted from the
portfolio.
The correlation between the performance of Nations Equity Index Fund and the S&P
500 Index is expected to be over 0.95 on an annual basis. A correlation of 1.00
would indicate perfect correlation, which would be achieved when the net asset
value of the Fund, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
500 Index. The Fund's ability to track the S&P 500 Index, however, may be
affected by, among other things, transaction costs, changes in either the
composition of the S&P 500 Index or the number of shares outstanding for the
components of the S&P 500 Index, and the timing and amount of shareholder
purchase and redemptions. The Fund may utilize stock index futures contracts to
minimize tracking error. In connection with engaging in futures transactions,
the Fund may hold cash, cash equivalents, and/or U.S. government securities.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical in common stocks. However, the Fund will maintain
a reasonable position in high-quality short-term debt securities and money
market instruments to meet redemption requests. If the Adviser believes that
market conditions warrant a temporary defensive posture, the Fund may invest
without limitation in high-quality short-term debt securities and money market
instruments. These securities and money market instruments may include domestic
and foreign commercial paper, certificates of deposit, bankers' acceptances and
time deposits, U.S. government securities and repurchase agreements.
The Fund may also invest a portion of its portfolio in instruments whose return
depends on stock market prices. These may include debt securities whose prices
or interest rates are indexed to the return of the S&P 500 Index, or swap
agreements linked to the S&P 500 Index, and options and futures contracts. The
Fund would invest in these types of instruments in order to seek to match the
total return of the Index in accordance with its investment objective. However,
instruments linked to stock market returns may not track the return of the Index
in all cases, and may involve additional credit risks. The Fund may also invest
in warrants. For additional information concerning the Fund's investment
practices, see "Appendix A."
About the Index: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis. The inclusion of a stock in the S&P 500
Index in no way implies that S&P believes the stock to be an attractive
investment. The Index is determined, composed and calculated by S&P without
regard to the Fund. S&P is neither a sponsor of, nor in any way affiliated with
the Fund, and S&P makes no representation
28
<PAGE>
or warranty, expressed or implied, on the advisability of investing in the Fund
or as to the ability of the Index to track general stock market performance. S&P
disclaims all warranties of merchantability or fitness for a particular purpose
or use with respect to the Index or any data included therein.
General: Each Equity 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 Equity Fund
may lend its portfolio securities to qualified institutional investors. Each
Equity Fund also may invest in restricted, private placement and other illiquid
securities. Each Equity Fund (except Nations Equity Index 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. See "Appendix A" below for additional
informaton concerning the investment practices of the Funds.
Balanced Fund:
Nations Balanced Assets Fund: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset classes in which the Fund invests:
common stocks, fixed income securities, and cash equivalents. In assessing
relative value and expected returns, the Adviser will evaluate current economic
and financial market conditions (both domestically and internationally), current
interest rate trends, earnings and dividend prospects for common stocks, and
overall financial market stability. These asset classes are actively managed in
an effort to maximize total return. In general, the Adviser believes that common
stocks offer the best opportunity for long-term capital appreciation.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as mortgage-backed securities.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA") or
Thomson BankWatch, Inc. ("BankWatch"), or, if unrated, determined by the Adviser
to be comparable in quality to instruments so rated. S&P, Moody's, D&P, Fitch,
IBCA and BankWatch are the six nationally recognized statistical rating
organizations (collectively, "NRSROs"). Obligations with the lowest investment
grade rating (e.g. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. See "Appendix B"
for a description of these ratings designations. Subsequent to its purchase by
the 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.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defense measure if market
conditions warrant.
The Fund also may invest in certain specified derivative securities, including:
interest rate swaps, caps and floors for hedging purposes; exchange-traded
options; over-the-counter options executed with primary dealers, including long
calls and puts and covered calls to enhance return; and CFTC-approved U.S. and
foreign exchange-traded financial futures and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors and engage in dollar roll transactions. The
Fund may invest in real estate investment trust securities. The Fund also may
invest in restricted, private placement and other illiquid securities, and also
may purchase securities issued by other investment companies, consistent with
the Fund's investment objective and policies. See "Appendix A" below for
additional information concerning the investment practices of this Fund.
29
<PAGE>
Bond Funds:
Nations Short-Intermediate Government Fund: Nations Short-Intermediate
Government Fund invests substantially all of its assets in U.S. Government
Obligations and repurchase agreements relating to such obligations. U.S.
Government Obligations have historically involved little risk of loss of
principal if held to maturity. However, due to fluctuations in interest rates,
the market value of such securities may vary during the period a shareholder
owns shares of the Fund. The value of the Fund's portfolio generally will vary
inversely with changes in prevailing interest rates. Under normal market
conditions, it is expected that the average weighted maturity of the Fund's
portfolio will be between two and seven years. Duration not to exceed 2.5 years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six 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 (see "Appendix A -- Foreign Securities"); mortgage-backed securities
of governmental issuers, including GNMA, FNMA and the Federal Home Loan Mortgage
Corporation ("FHLMC"), or of private issuers, including mortgage pass-through
certificates, collateralized mortgage obligations ("CMOs"), real estate
investment trust securities or mortgage-backed bonds; other asset-backed
securities rated by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality. See "Appendix A" below for additional
information concerning the investment practices of this Fund.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 10% of its assets in foreign securities. See "Appendix A" below for
additional information concerning the investment practices of this Fund.
Nations Government Securities Fund: Under normal circumstances, substantially
all, and in any event, at least 65% of the Fund's assets, will be invested in
U.S. Government Obligations. The Fund also may invest in corporate convertible
and non-convertible debt obligations, including bonds, notes and debentures
rated investment grade at the time of purchase by one of the six 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 (see "Appendix
A -- Foreign Securities"); mortgage-backed securities of governmental issuers,
including GNMA, FNMA and FHLMC, or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. Under normal market conditions, it is expected that the average
weighted maturity of the Fund's portfolio will be greater than four years.
Duration is expected to be 3.5 to six years. For a more detailed description of
the investment practices of this Fund, see "Appendix A".
The Fund also may hold or invest in short-term U.S. Government Obligations,
"high quality" money market instruments (i.e., those within the two highest
rating categories or unrated instruments deemed by the Adviser to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportion as, in the Adviser's opinion, existing
circumstances warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 10% of its assets in foreign securities. See "Appendix A" below for
additional information concerning the investment practices of this Fund.
Nations Short-Term Income Fund: In pursuing its investment objective, Nations
Short-Term Income Fund may invest in a broad range of debt obligations such as
U.S. Government Obligations; corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the six 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 (see
"Appendix A -- Foreign Securities"); and mortgage-related securities of
governmental issuers, including GNMA, FNMA and FHLMC, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or, if not so rated, determined by the Adviser to be of
comparable quality to instruments so rated. (For more information concerning
asset-backed securities, including mortgage-backed securities, see "Appendix
A -- Asset-Backed Securities.") Under normal market conditions, it is expected
that the average weighted maturity of the Fund's portfolio will not exceed three
years. Duration not to exceed three years.
The Fund will invest, under normal market conditions, at least 65% of the total
value of its assets in investment grade corporate bonds and mortgage-backed
bonds. Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund generally will be rated investment grade at the time of
purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
Obligations rated in the lowest of the top four investment
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<PAGE>
grade rating categories (e.g. rated "BBB" by S&P or "Baa" by Moody's) have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
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. See "Appendix B" below
for a description of these rating designations.
The Fund also may hold or invest in short-term U.S. Government Obligations,
"high quality" money market instruments (i.e., those within the two highest
rating categories or unrated instruments determined by the Adviser to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in the Adviser's opinion, prevailing
market or economic circumstances warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its assets in foreign securities. See "Appendix A" below for
additional information concerning the investment practices of this Fund.
Nations Diversified Income Fund: In pursuing its investment objective, Nations
Diversified Income Fund may invest in a broad range of corporate convertible and
non-convertible debt obligations such as fixed- and variable-rate bonds; U.S.
Government Obligations; dollar-denominated and non-dollar-denominated debt
obligations of foreign issuers, including foreign corporations and foreign
governments (see "Appendix A -- Foreign Securities"); mortgage-backed securities
of governmental issuers, including GNMA, FNMA and FHLMC, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. (For more information concerning asset-backed securities,
including mortgage-backed securities, see "Appendix A -- Asset-Backed
Securities.") Under normal market conditions, it is expected that the average
weighted maturity of the Fund's portfolio will be greater than five years. In
pursuing its investment objective, the Fund also may invest in dividend-paying
convertible and non-convertible preferred and common stocks.
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in fixed income securities, such as government, government
agency and corporate bonds. Most obligations acquired by the Fund will be issued
by companies or governmental entities located within the United States. Not less
than 65% of the debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by D&P, Fitch, S&P, Moody's, IBCA or BankWatch,
or, if unrated, determined by the Adviser to be comparable in quality to
instruments so rated. Obligations rated in the lowest of the top four investment
grade rating categories (e.g. rated "BBB" by S&P or "Baa" by Moody's) have
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds." They tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities. See "Appendix A -- Lower-Rated Debt Securities."
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. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in short-term U.S. Government Obligations, "high
quality" money market instruments (i.e., those within the two highest rating
categories or unrated instruments deemed by the Adviser to be of comparable
quality), repurchase agreements and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportions as, in the Adviser's opinion, existing circumstances
warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its assets in foreign securities. The value of the Fund's
portfolio generally will vary inversely with changes in prevailing interest
rates. See "Appendix A" below for additional information concerning the
investment practices of this Fund.
Nations Strategic Fixed Income Fund: In pursuing its investment objective,
Nations Strategic Fixed Income Fund may invest in corporate convertible and
non-convertible debt obligations, including bonds, notes and debentures rated
investment grade at the time of pur-
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<PAGE>
chase by one of the six NRSROs, or if not so rated, determined by the Adviser to
be of comparable quality to instruments so rated; U.S. Government Obligations;
dollar-denominated debt obligations of foreign issuers, including foreign
corporations and foreign governments (see "Appendix A -- Foreign Securities");
mortgage-backed securities of governmental issuers, including GNMA, FNMA and
FHLMC, or of private issuers, including mortgage pass-through certificates,
CMOs, real estate investment trust securities or mortgage-backed bonds; other
asset-backed securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality. (For more information
concerning asset-backed securities, including mortgage-backed securities, see
"Appendix A -- Asset-Backed Securities.") The Fund may invest in long-term
intermediate-term and short-term securities. Under normal market conditions, it
is expected that the average weighted maturity of the Fund's portfolio will be
10 years or less. Pursuant to its investment objective, the Fund also may invest
in dividend paying preferred and common stock.
Under normal market conditions, the Fund will invest at least 65% of the total
value of its assets in government, corporate and mortgage-backed securities.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
D&P, Fitch, S&P, Moody's, IBCA or BankWatch, or, if unrated, determined by
NationsBank to be comparable in quality. Obligations rated in the lowest of the
top four investment grade rating categories (e.g. rated "BBB" by S&P or "Baa" by
Moody's) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. 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. See "Appendix B" below
for a description of these rating designations.
The Fund also may hold or invest in short-term U.S. Government Obligations,
"high quality" money market instruments (i.e., those within the two highest
rating categories or unrated instruments deemed by the Adviser to be of
comparable quality), repurchase agreements and cash. Such obligations may
include those issued by foreign banks and foreign branches of U.S. banks. These
investments may be in such proportions as, in the Adviser's opinion, existing
circumstances warrant.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its assets in foreign securities. The value of the Fund's
portfolio generally will vary inversely with changes in prevailing interest
rates. See "Appendix A" below for additional information concerning the
investment practices of this Fund.
Nations Global Government Income Fund: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund" below. Because the Fund intends to invest a large portion of its assets in
foreign Government Securities, the Fund is a "non-diversified" investment
company for purposes of the Investment Company Act of 1940 (the "1940 Act"). The
Fund may invest in securities of issuers located in any region or country and
that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various count-
ries and currencies will vary in accordance with the Adviser's assessment of the
relative yield and appreciation of such securities. Fundamental economic
strength, credit quality and interest rate trends are the principal factors
considered by the Adviser in determining whether to increase or decrease the
emphasis placed upon a particular country or particular type of security within
the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or
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<PAGE>
"BBB" by S&P, but does not, as a general matter, intend to invest more than 10%
of its total assets in such securities. 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 event in determining whether the Fund should continue to hold the
obligation. In no event will the Fund hold more than 5% of its total net assets
in securities rated below investment grade. See "Appendix B" below for a
description of these rating designations. The Adviser expects that the Fund's
dollar-weighted average maturity will not be greater than 15 years under normal
market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
General: Each of the 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 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. Nations Short-Intermediate
Government Fund, Nations Government Securities Fund, Nations Short-Term Income
Fund, Nations Diversified Income Fund and Nations Strategic Fixed Income Fund
also may lend their portfolio securities to qualified institutional investors.
Nations Short-Intermediate Government Fund, Nations Government Securities Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund and Nations
Strategic Fixed Income Fund also may invest in restricted, private placement and
other illiquid securities and may engage in reverse repurchase agreements and
dollar roll transactions. Nations Global Government Income Fund may invest in
money market instruments, forward foreign currency exchange contracts, futures
and options and other instruments. Additionally, each Bond Fund may purchase
securities issued by other investment companies, consistent with the Fund's
investment objective and policies. Nations Tax Exempt Fund may invest more than
40% of its portfolio in puts or other securities guaranteed by banks and other
financial institutions. Accordingly, changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price. Certain
government securities that have variable or floating interest rates or demand or
put features may be deemed to have remaining maturities shorter than their
nominal maturities for purposes of determining the average weighted maturity and
duration of the Funds.
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
Special Risk Considerations Relevant to an Investment in Nations International
Equity Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and
Nations Global Government Income Fund: Investors should understand and consider
carefully the special risks involved in foreign investing. In addition, each of
those Funds presents unique risks that investors should be aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of its total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties.
The same is true, but even more so, for the emerging market countries in which
Nations Emerging Markets Fund will invest. Although the Fund believes that its
investments present the possibility for significant growth over the long term,
they also entail significant risks. Many investments in emerging markets can be
considered speculative, and their prices can be much
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more volatile than in the more developed nations of the world. This difference
reflects the greater uncertainties of investing in less established markets and
economies. The financial markets of emerging markets countries are generally
less well capitalized and thus securities of issuers based in such countries may
be less liquid.
Nations Global Government Income Fund's yield and share price will change based
on changes in domestic or foreign interest rates and in an issuer's
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, for each of those Funds, investing in securities denominated in
foreign currencies and utilization of forward foreign currency exchange
contracts and other currency hedging techniques involve certain considerations
comprising both opportunities and risks not typically associated with investing
in U.S. dollar-denominated securities. Additionally, changes in the value of
foreign currencies can significantly affect a Fund's share price. General
economic and political factors in the various world markets also can impact a
Fund's share price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
Portfolio Turnover (Non-Money Market Funds): Generally, the Equity Funds, the
Balanced Fund and the Bond Funds (the "Non-Money Market Funds") will purchase
portfolio securities for capital appreciation or investment income, or both, and
not for short-term trading profits. If a Fund's portfolio turnover rate exceeds
100%, it may result in higher brokerage costs and possible tax consequences for
the Fund and its shareholders. For the Funds' portfolio turnover rates, see
"Financial Highlights."
Risk Considerations: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
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 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.
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 Funds'
investment objectives 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 -- Portfolio Securities."
Investment Limitations: Each Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of
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such purchase to be invested in the securities of one or more issuers conducting
their principal activities in the same industry, provided that this limitation
does not apply (a) with respect to Nations Global Government Income Fund, to
investments in foreign Government Securities; and (b) to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities. In addition, this limitation does not apply to investments by
"money market funds" as that term is used under the 1940 Act, in obligations of
domestic banks.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund (other than the Nations Global Government Income Fund) may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their current position and
needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
Restraints on Investments by Money Market Funds: In order for the Money Market
Funds to value their investments on the basis of amortized cost, investments
must be in accordance with the requirements of Rule 2a-7 under the 1940 Act,
some of which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with a
remaining maturity of more than 397 days, provided such obligations are subject
to demand features or resets and to maintaining a dollar-weighted average
portfolio maturity of 90 days or less. Quality requirements generally limit
investments to U.S. dollar-denominated instruments determined to present minimal
credit risks and that at the time of acquisition are rated in the first or
second rating categories (known as "first tier" and "second tier" securities,
respectively) by the required number of NRSROs (at least two or, if only one
NRSRO has rated the security, that one NRSRO) or, if unrated by any NRSRO, are
(i) comparable in priority and security to a class of short-term securities of
the same issuer that has the required rating, or (ii) determined to be
comparable in quality to securities having the required rating. The
diversification requirements provide generally that a Money Market Fund may not
at the time of acquisition invest more than 5% of its assets in securities of
any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Tax Exempt Fund) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Money Market Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Money
Market Fund's own restrictions will govern.
How Performance Is Shown
Money Market Funds: From time to time the Money Market Funds may advertise the
yield and effective yield on a class of shares. Yield and effective yield
figures are based on historical data and are not intended to indicate future
performance. The "yield" of a class of shares in a Fund refers to the income
generated by an investment in such class over a seven-day period identified in
the advertisement. This income is then "annualized." That
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is, the amount of income generated by the investment during that week is assumed
to be generated each week over a 52-week period and is shown as a percentage of
the investment. The "effective yield" is calculated similarly, but, when
annualized, the income earned by an investment in a class of shares in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment.
Non-Money Market Funds: From time to time the Non-Money Market Funds may
advertise the total return and yield on a class of shares. Total return and
yield figures are based on historical earnings and are not intended to indicate
future performance. The "total return" of a class of shares of Non-Money Market
Fund may be calculated on an average annual total return basis or an aggregate
total return basis. Average annual total return refers to the average annual
compounded rates of return over one-, five-, and ten-year periods or the life of
the Fund (as stated in the advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment, assuming the reinvestment of all dividend and capital gains
distributions. Aggregate total return reflects the total percentage change in
the value of the investment over the measuring period again assuming the
reinvestment of all dividends and capital gains distributions. Total return may
also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary A Shares, the Money Market Funds offer Primary B,
Investor A, Investor B, Investor C and Investor D Shares. In addition to Primary
A Shares, the Non-Money Market Funds offer Primary B, Investor A, Investor C and
Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. Any fees charged by an institution directly to its customers' accounts
in connection with investments in the Funds will not be included in calculations
of total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or an investor's Institution, as defined below.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios are managed under the direction of their Board of Trustees
and Boards of Directors, respectively. Nations Fund Trust's SAI contains the
names of and general background information concerning each Trustee of Nations
Fund Trust. Nations Fund, Inc.'s and Nations Portfolios' SAIs contain the names
of and general background information concerning each Director of Nations Fund,
Inc. and Nations Portfolios, respectively.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
Investment Adviser: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Gartmore serves as sub-investment adviser. TradeStreet is a wholly owned
subsidiary of NationsBank. TradeStreet provides investment management services
to individuals, corporations and institutions.
Gartmore, with principal offices at One NationsBank Plaza, Charlotte, North
Carolina 28255, serves as sub-investment adviser to Nations International Equity
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Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund pursuant to sub-advisory agreements. Gartmore is a
joint venture structured as a general partnership between NB Partner Corp., a
wholly owned subsidiary of NationsBank, and Gartmore U.S. Limited, an indirect,
wholly owned subsidiary of Gartmore plc Investment Management ("Gartmore plc"),
a UK company which is the holding company for a leading UK-based international
fund management group of companies National Westminster Bank plc and affiliated
entities (collectively, "Natwest") own 100% of the equity of Gartmore Investment
Management plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore"), the
predecessor to Gartmore, pursuant to sub-advisory agreements among NBAI, Nations
Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on behalf
of the Funds. Nations Gartmore was a joint venture structured as a general
partnership between NB Partner Corp. and Gartmore U.S. Limited. On April 10,
1996, NatWest acquired a controlling interest in Gartmore plc from Compagnie de
Suez and affiliated entities ("Compagnie de Suez") through a direct purchase
from Compagnie de Suez of its indirect subsidiary Indosuez UK Asset Management
Limited, which held 75% of Gartmore plc's outstanding voting securities (the
"Acquisition"). NatWest acquired the remaining portion of Gartmore's plc's
shares held by public shareholders through a tender offer. Gartmore is the
successor entity resulting from the Acquisition and change of control of Nations
Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. With
respect to the Non-Money Market Funds, the Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 0.20% of the combined average daily net assets of such Funds
in excess of $250 million; 0.40% of the average daily net assets of Nations
Government Money Market Fund; 0.50% of the average daily net assets of Nations
Equity Index Fund; 0.60% of the average daily net assets of each of the Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund and Nations Strategic Fixed Income Fund; 0.75% of the
average daily net assets of each of Nations Value Fund, Nations Capital Growth
Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund and Nations
Balanced Assets Fund; 0.65% of the first $100 million of the Nations Government
Securities Fund's average daily net assets, plus 0.55% of the Fund's average
daily net assets in excess of $100 million and up to $250 million, plus 0.50% of
the Fund's average daily net assets in excess of $250 million; 0.75% of the
first $100 million of the Nations Equity Income Fund's average daily net assets,
plus 0.70% of the Fund's average daily net assets in excess of $100 million and
up to $250 million, plus 0.60% of the Fund's average daily net assets in excess
of $250 million; 0.90% of the average daily net assets of Nations International
Equity Fund; 1.10% of the average daily net assets of Nations Emerging Markets
Fund; 0.90% of the average daily net assets of Nations Pacific Growth Fund; and
0.70% of the average daily net assets of Nations Global Government Income Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of 0.055% of Nations Prime Fund's, Nations Treasury
Fund's and Nations Government Money Market Fund's average daily net assets;
0.20% of Nations Equity Income Fund's average daily net assets; 0.10% of Nations
Equity Index Fund's average daily net assets; 0.25% of Nations Value Fund's,
Nations Balanced Assets Fund's, Nations Capital Growth Fund's, Nations Emerging
Growth Fund's and Nations Disciplined Equity Fund's average daily net assets;
0.15% of Nations Short-Intermediate Government Fund's, Nation's Government
Securities Fund's, Nations Short-Term Income Fund's, Nations Diversified
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Income Fund's, and Nations Strategic Fixed Income Fund's average daily net
assets.
For services provided and expenses assumed pursuant to the sub-advisory
agreements, Gartmore is entitled to receive from NBAI sub-advisory fees,
computed daily and paid monthly at the annual rates of 0.70% of Nations
International Equity Fund's average daily net assets. 0.85% of Nations Emerging
Markets Fund's average daily net assets; 0.70% of Nations Pacific Growth Fund's
average daily net assets and 0.54% of Nations Global Government Income Fund's
average daily net assets.
From time to time, NBAI (and/or TradeStreet and/or Gartmore) may waive or
reimburse (either voluntarily or pursuant to applicable state limitations)
advisory fees or expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; Nations Value Fund --
0.75%; Nations Capital Growth Fund -- 0.75%; Nations Emerging Growth
Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%; Nations Equity Index
Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%; Nations Short-Intermediate
Government Fund -- 0.37%; Nations Short-Term Income Fund -- 0.27%; Nations
Diversified Income Fund -- 0.50%; and Nations Strategic Fixed Income
Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; Nations Treasury Fund -- 0.18%; Nations
Equity Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and
Nations Government Securities Fund -- 0.48%.
For the fiscal period from June 30, 1995 to Decem-
ber 31, 1995, after waivers, Nations Portfolios paid NationsBank under a prior
to Investment Advisory Agreement advisory fees at the indicated rates of the
following Funds' average daily net assets: Nations Emerging Markets
Fund -- 0.25%; Nations Pacific Growth Fund -- 0.20%; and Nations Global
Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets; Nations Government Money Market Fund -- 0.12%; Nations Value
Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%; Nations Emerging Growth
Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%; Nations Equity Index
Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%; Nations Short-Intermediate
Government Fund -- 0.37%; Nations Short-Term Income Fund -- 0.27%; Nations
Diversified Income Fund -- 0.50%; and Nations Strategic Fixed Income
Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; Nations Treasury Fund -- 0.18%; Nations
Equity Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and
Nations Government Securities Fund -- 0.48%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.055%; Nations Value Fund -- 0.25%; Nations
Capital Growth Fund -- 0.25%; Nations Emerging Growth Fund -- 0.25%; Nations
Disciplined Equity Fund -- 0.25%; Nations Equity Index Fund -- 0.10%; Nations
Balanced Assets Fund -- 0.25%; Nations Short-Intermediate Government
Fund -- 0.15%; Nations Short-Term Income Fund -- 0.15%; Nations Diversified
Income Fund 0.15%; Nations Strategic Fixed Income Fund -- 0.15%; Nations Prime
Fund -- 0.055%; Nations Treasury Fund -- 0.055%; Nations Equity Income Fund --
.20%; and Nations Government Securities Fund -- 0.15%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds average daily net assets: Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager
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for the Funds since 1993. Prior to assuming her position with TradeStreet, she
was Vice President and Portfolio Manager for the Investment Management Group at
NationsBank. Ms. Duck has worked in the investment community since 1980. Her
past experience includes product management and trading for Interstate/Johnson
Lane and First Charlotte Corporation. Ms. Duck graduated from King's College.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund. He has been
Portfolio Manager for Nations Equity Index Fund since 1993. Prior to assuming
his position with TradeStreet, he was Vice President and Structured Products
Manager for the Investment Management Group at NationsBank. He has worked in the
investment community since 1990. His past experience includes portfolio
management, derivatives management and quantitative analysis for the Investment
Management Group at NationsBank and Sovran Bank of Tennessee. Mr. Golden
received a B.B.A. in Finance from Belmont University. He is a Chartered
Financial Analyst candidate and a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager for Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been the
Portfolio Manager for Nations Value Fund since 1989. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Herrmann has worked for
the Investment Management Group at NationsBank since 1981 where her
responsibilities included fund management and institutional portfolio
management. She attended Virginia Wesleyan College. Ms. Herrmann holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been the Portfolio Manager for Nations Equity Income Fund since
1991. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. He has worked in the investment community since 1980. His past
experience includes fund analysis and portfolio management for National Bank of
Detroit. Mr. Williams received a B.S. in Accounting from East Carolina
University, Summa Cum Laude and an M.B.A. from Indiana University. He holds the
Chartered Financial Analyst designation, is on the Advisory Board of Indiana
University's Investment Management Academy, and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Stephen Watson has been Principal Portfolio Manager for Nations International
Equity Fund since February, 1995. He joined the Gartmore Group as a Global Fund
Manager in August 1993 and was recently appointed Head of the International and
Global Team. Prior to that, Mr. Watson was employed by James Capel Fund Managers
where he acted as a Director, Global Fund Manager and Client Services Manager
for various international clients. From 1980 to 1987 he was associated with
Capel-Cure Myers in their portfolio Management Division and prior to that he was
with the investment division at Samuel Montagu. Mr. Watson is currently a member
of the Securities Institute.
Philip Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Gartmore Emerging Markets Team. He has been Portfolio
Manager of Nations Emerging Markets Fund since 1995. Prior to joining Nations
Gartmore, Mr. Ehrmann was the Director of Emerging Markets for Invesco in
London. Mr. Ehrmann has over 15 years of investment management experience.
Seok Teoh is Principal Portfolio Manager of the Nations Pacific Growth Fund. She
has been Portfolio Manager of Nations Pacific Growth Fund since the Fund's
inception. She has been associated with the Gartmore Group since 1990 as the
London based manager on its Far East desk. Prior to that, Ms. Teoh worked for
Overseas Union Bank Securities in Singapore where she was responsible for
Singaporean and Malaysian equity sales and then subsequently for Rothschild as a
Fund Manager in Singapore and later in Tokyo. Ms. Teoh, who is a native of
Singapore, is fluent in Mandarin and Cantonese and received an Economics degree
from the University of Durham in 1985.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has
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worked in the financial investment community since 1981. His past experience
includes portfolio management, equity research and financial analysis for the
Investment Management Group at NationsBank and Duke Power Company. Mr. Sanders
received a B.A. in Economics from the University of Michigan and an M.B.A. from
University of North Carolina at Charlotte. He holds the Chartered Financial
Analyst designation and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Financial Analysts, Inc.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been Portfolio Manager for Nations Emerging Growth
Fund since 1992. Prior to assuming his position with TradeStreet, he was Senior
Vice President and Senior Portfolio Manager for the Investment Management Group
at NationsBank. He has worked in the investment community since 1968. His past
experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Development for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager for Nations Disciplined Equity Fund since
1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for NationsBank. Mr. Moser has worked for
the Investment Management Group at NationsBank since 1983 where his
responsibilities included institutional portfolio management and equity
analysis. Mr. Moser graduated Phi Beta Kappa with a B.S. in Mathematics from
Wake Forest University. He holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research as well as
the North Carolina Society of Financial Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Previously she was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. She has worked in the investment
community since 1981. Her past experience includes research analysis and
portfolio management for Mercantile Safe Deposit and Trust, and National City
Bank. Ms. Hale received a B.S. in Business and Finance from Mount St. Mary's
College and an M.B.A. from Kent State University. She holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Security
Analysts, Inc. She is also a member of the National Association for Petroleum
Investment Analysts and the World Affairs Council of Washington, D.C.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager for Nations Global Government Income
Fund since the Fund's inception. He joined Gulf International Bank in 1986 on
the trading desk, and subsequently joined their Investment Management Group in
1988, managing multi-currency funds for institutional clients in the Gulf
region. Prior to that he was associated with Sumitomo Finance International as a
senior trader. Mr. Rimmer graduated from Cambridge University in 1984 with an
honors degree in Economics. Mr. Rimmer also is a member of the Institute of
Investment Management and Research.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Previously he was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Mr. Cobb has worked in the
investment community since 1987. His past experience includes portfolio
management of intermediate duration and insurance products for Trust Company
Bank and Barnett Bank Trust Company Inc. Mr. Cobb received a B.A. in Economics
from the University of North Carolina at Chapel Hill.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and the Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud
has been the Portfolio Manager for the Nations Diversified Income Fund since
1992. Previously he was Senior Vice President and Senior Portfolio Manager for
the Investment Management Group at NationsBank. Mr. Ahnrud has worked for the
Investment Management Group at NationsBank since 1985 where his responsibilities
initially included institutional investment management sales and later involved
high yield credit analysis. Mr. Ahnrud received a dual B.S. in Finance and
Investments from Babson College and an M.B.A. from Duke University, Fuqua School
of Business. He holds the Chartered Financial Analyst designation and is a
member of the Association for Investment Management and Research as well as the
North Carolina Society of Financial Analysts, Inc.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Govern-
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ment Fund and Nations Government Securities Fund. Mr. Swaim has been Portfolio
Manager for the Funds since 1995. Previously he was Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Swaim
has worked in the investment community since 1986. His past experience includes
derivative products manager for the NationsBank Texas Corporate Investment
Division portfolio. Mr. Swaim received a B.S. from University of North Texas and
an M.B.A. from University of Texas at Arlington.
David M. Hetherington, CFA, is Managing Director of Fixed Income Management for
TradeStreet. Mr. Hetherington is responsible for overseeing all fixed income
product management and is Senior Portfolio Manager for Nations Short-Term Income
Fund. Mr. Hetherington has been Portfolio Manager for Nations Short-Term Income
Fund since 1995. Previously he was Senior Vice President and Director of Fixed
Income for the Investment Management Group at NationsBank. Mr. Hetherington has
worked in the investment community since 1975. His past experience includes
working as a portfolio manager, a trust investment officer and a securities
analyst for First Citizens Bank and Deposit Guarantee as well as working as an
Economist for the U.S. Department of Labor in the Bureau of Labor Statistics.
Mr. Hetherington received a B.A. in Economics from Duke University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements 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.
Other Service Providers: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Government Money
Market Fund -- 0.09%; Nations Value Fund, Nations Capital Growth Fund, Nations
Emerging Growth Fund, Nations Disciplined Equity Fund, Nations Equity Index
Fund, Nations Balanced Assets Fund, Nations Short-Intermediate Government Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund, and Nations
Strategic Fixed Income Fund -- 0.10%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc., paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
Nations Treasury Fund -- 0.05%; Nations Equity Income Fund -- 0.10%; Nations
International Equity Fund -- 0.10%; and Nations Government Securities
Fund -- 0.10%.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the rate of 0.10% of
the following Funds' average daily net assets: Nations Pacific Growth Fund,
Nations Emerging Markets Fund, and Nations Global Government Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such
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services, NationsBank shall be entitled to receive a monthly fee from Stephens
based on an annual rate of 0.01% of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Primary Shares of the Funds.
Bank of New York, Avenue des Arts, 35 1040 Brussels, Belgium, serves as
custodian for the assets of the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund.
First Data serves as the Transfer Agent for each of the Fund's Primary A Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" and, together with Bank of
New York, called "Custodians") serves as custodian for the assets of each Fund
except Nations International Equity Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund and Nations Global Government Income Fund. NationsBank of
Texas, which also serves as the sub-transfer agent for each Fund's Primary A
Shares, is located at 1401 Elm Street, Dallas, Texas 75202, and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, NationsBank of Texas is entitled to receive, in addition to
out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1% of
the average daily net assets of each Fund for which it acts as custodian, (ii)
$10.00 per repurchase collateral transaction by such Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving such Funds. In return for
providing sub-transfer agency services for the Primary A Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
Expenses: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; fees (including fees paid to Nations Fund's trustees, directors
and officers); federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodians and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Any general expenses of Nations Fund Trust, Nations
Fund, Inc. and/or Nations Portfolios that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Fund Trust, Nations Fund, Inc. and/or Nations Portfolios or in such
other manner as the Board of Trustees or the relevant Board of Directors
determines is fair and equitable.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional
Reserves. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
Nations Fund Trust: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Money Market
Funds currently offer six classes of shares -- Primary A Shares, Primary B
Shares, Investor A Shares, Investor B Shares, Investor C Shares and Investor D
Shares. The Non-Money Market Funds currently offer five classes of
shares -- Primary A Shares, Primary B Shares, Investor A Shares, Investor C
Shares and Investor N Shares. Certain Funds, however, do not offer shares of
each class. This Prospectus relates only to the Primary A Shares of the
following funds of Nations Fund Trust: Nations Government Money Market Fund,
Nations Value Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund,
Nations Disciplined Equity Fund, Nations Equity Index Fund, Nations Balanced
Assets Fund, Nations Short-Intermediate Government Fund, Nations Short-Term
Income Fund, Nations Diversified Income Fund and Nations Strategic Fixed Income
Fund. To obtain additional information regarding the Funds' other classes of
shares which may be available to you, contact your Institution (as defined
below) or Nations Fund at 1-800-626-2275.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income
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earned on the assets belonging to such fund as are declared in the discretion of
Nations Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of
Trust authorizes the Board of Trustees to classify or reclassify any class of
shares into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the 1940 Act
requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
Nations Fund, Inc.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Primary A Shares of the following funds of Nations Fund, Inc.: Nations Prime
Fund, Nations Treasury Fund, Nations Equity Income Fund, Nations International
Equity Fund and Nations Government Securities Fund. To obtain additional
information regarding the Funds' other classes of shares which may be available
to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Nations Portfolios: Nations Portfolios was incorporated in Maryland on January
23, 1995. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
150,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Primary A Shares of Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund of Nations Portfolios. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Institution (as defined below) or Nations Fund at 1-800-626-2275.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective
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fund of Nations Portfolios, less (b) the liabilities of Nations Portfolios
attributable to the respective fund or class or allocated among the funds or
classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosures on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios have entered into an indemnification agreement
that creates a right of indemnification from the investment company responsible
for any such misstatement, inaccuracy or incomplete disclosure that may appear
in this Prospectus.
About Your Investment
How To Buy Shares
Primary A Shares may be sold to financial institutions (including NationsBank
and its affiliated and correspondent banks) and fee-based planners acting on
behalf of their customers, employee benefit plans, charitable foundations and
endowments. Primary A Shares may, at times, be sold to other similar categories
of investors.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions ("Institutions") acting on behalf of their
customers ("Customers") may establish certain procedures for processing
Customers' purchase orders and may charge their Customers for services provided
to them in connection with their investments.
Purchases of the Money Market Funds may be effected on days on which the Federal
Reserve Bank of New York is open for business (a "Bank Business Day"). Purchases
of the Non-Money Market Funds may be effected on days on which the New York
Stock Exchange (the "Exchange") is open for business (a "NYSE Business Day").
Unless otherwise specified, the term Business Day in this Prospectus refers to a
Bank Business Day with respect to a Money Market Fund, and a NYSE Business Day
with respect to a Non-Money Market Fund.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary A Shares is recorded on the books of the Funds, and share certificates
are not issued. It is the responsibility of Institutions, when applicable, to
record beneficial ownership of Primary A Shares and to reflect such ownership in
the account statements provided to their Customers.
Effective Time of Purchases -- Money Market Funds: Purchases will be effected
only when federal funds are available for investment on the Business Day the
purchase order is received by Stephens or by the Transfer Agent. A purchase
order must be received by Stephens or by the Transfer Agent by 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Government Money
Market Fund). A purchase order received by Stephens or the Transfer Agent after
such time will not be accepted; notice thereof will be given to the Institution
or investor placing the order, and any funds received will be returned promptly
to the sending Institution or investor. If federal funds are not available by
4:00 p.m., Eastern time, the order will be canceled. Primary A Shares are
purchased at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
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Effective Time of Purchases -- Non-Money Market Funds: Purchase orders for
Primary A Shares in the Non-Money Market Funds that are received by Stephens or
by the Transfer Agent before the close of regular trading hours on the Exchange
(currently 4:00 p.m., Eastern time) on any Business Day are priced according to
the net asset value determined on that day but are not executed until 4:00 p.m.,
Eastern time, on the Business Day on which immediately available funds in
payment of the purchase price are received by the Fund's Custodian. Such payment
must be received no later than 4:00 p.m., Eastern time, by the third Business
Day following receipt of the order. If funds are not received by such date, the
order will not be accepted and notice thereof will be given to the Institution
or investor placing the order. Payment for orders which are not received or
accepted will be returned after prompt inquiry to the sending Institution or
investor. Primary A Shares are purchased at the net asset value per share next
determined after receipt of the order by Stephens or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases of Primary A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
With respect to the Money Market Funds, redemption orders must be received on a
Business Day before 3:00 p.m., Eastern time (12 noon, Eastern time, with respect
to Nations Government Money Market Fund), and payment will normally be wired the
same day to the Institution or investor. Nations Fund reserves the right to wire
redemption proceeds within three Business Days after receiving the redemption
orders if, in the judgment of the Adviser, an earlier payment could adversely
impact a Fund. However, redemption proceeds for shares purchased by check may
not be remitted until at least 15 days after the date of purchase to ensure that
the check has cleared; a certified check, however, is deemed to be cleared
immediately. Redemption orders will not be accepted by Stephens or by the
Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Government Money Market Fund), for execution on that Business
Day.
With respect to the Non-Money Market Funds, redemption proceeds are normally
remitted in federal funds wired to the redeeming Institution or investor within
three Business Days following receipt of the order.
Nations Fund may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a Customer has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the Customer may
be obliged to redeem all or a part of his or her Primary A Shares in the Funds
to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Institutions are responsible for transmitting redemption orders to Stephens or
to the Transfer Agent and for crediting their Customers' accounts with the
redemption proceeds on a timely basis. It is the responsibility of Stephens to
transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary A Shares and may establish additional procedures.
Information concerning any charges or procedures is available from the
Institutions. Redemption orders are effected at the net asset value per share
next determined after acceptance of the order by Stephens or by the Transfer
Agent.
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of a Fund to
acquire Primary A Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A Shares of another Fund is made on the basis of
the next calculated net asset value per share of each Fund after the exchange
order is received.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be
termi-
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nated or materially revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
If you have telephone exchange privileges, during periods of significant
economic or market change, such telephone exchanges may be difficult to
complete. In such event, shares may be exchanged by mailing your request
directly to the entity through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens or the Transfer Agent. Investors should consult their
Institution, Stephens or the Transfer Agent for further information regarding
exchanges. Your exchange feature may be governed by your account agreement with
your Institution.
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Money Market Funds are valued as of 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Government Money
Market Fund), each Bank Business Day. Shares of the Non-Money Market Funds are
valued as of the close of regular trading on the Exchange (currently 4:00 p.m.,
Eastern time) on each NYSE Business Day. Currently, the days on which the
Federal Reserve Bank of New York is closed (other than weekends) are: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
With respect to the Non-Money Market Funds, portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities are valued at their fair
value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
Money Market Funds: Dividends from net investment income of each of the Money
Market Funds are declared daily to shareholders at 3:00 p.m., Eastern time (12
noon, Eastern time, with respect to Nations Government Money Market Fund), on
the day of declaration. Primary A Shares begin earning dividends on the day the
purchase order is executed and continue earning dividends through and including
the day before the redemption order is executed (e.g., the settlement date).
Dividends are paid within five Business Days after the end of each month.
Dividends are paid in the form of additional Primary A Shares of the same Fund
unless the Customer or investor has elected prior to the date of distribution to
receive payment in cash. Such election, or any revocation thereof, must be made
in writing to the Fund's Transfer Agent and will become effective with respect
to dividends paid after its receipt. Dividends are paid in cash within five
Business Days after a shareholder's complete redemption of his Primary A Shares
in a Fund. To the
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extent that there are any net short-term capital gains, they will be paid at
least annually.
Non-Money Market Funds: Dividends from net investment income are declared daily
and paid monthly by the Bond Funds. Dividends from net investment income are
declared and paid each calendar quarter by the Equity Funds and the Balanced
Fund. Each Fund's net realized capital gains (including net short-term capital
gains) are distributed at least annually.
Primary A Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Primary A Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided, however, that the
purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
The net asset value of Primary A Shares in the Non-Money Market Funds will be
reduced by the amount of any dividend or distribution. Dividends and
distributions are paid in cash within five Business Days of the end of the month
or quarter to which the dividend relates. Dividends are paid in the form of
additional Primary A Shares of the same Fund unless the Customer or investor has
elected prior to the date of distribution to receive payment in cash. Such
election, or any revocation thereof, must be made in writing to the Fund's
Transfer Agent and will become effective with respect to dividends paid after
its receipt. Dividends and distributions payable to a shareholder are paid in
cash within five Business Days after a shareholder's complete redemption of his
or her Primary A Shares in a Fund.
Tax Information: Each of the Funds intends to qualify as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves a Fund of liability for Federal income tax
to the extent its earnings are distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by a Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds may be entitled to the dividends-received
deduction for distributions from those Funds investing in the stock of domestic
corporations to the extent of the total qualifying dividends received by the
distributing Fund. Corporate shareholders of the Nations International Equity,
Nations Emerging Markets and Nations Pacific Growth Funds may be eligible for
the dividends-received deduction on the dividends (excluding the net capital
gains dividends) paid by these Funds to the extent that each such Fund's income
is derived from dividends (which, if received directly, would qualify for such
deduction) received from domestic corporations. In order to qualify for the
dividends-received deduction, a corporate shareholder must hold the fund shares
paying the dividends upon which the deduction is based for at least 46 days.
Substantially all of the net realized long-term capital gains of the Non-Money
Market Funds, if any, will be distributed at least annually to such Funds'
shareholders. These Funds will generally have no tax liability with respect to
such gains, and the distributions will be taxable to such shareholders who are
not currently exempt from Federal income tax as long-term capital gains,
regardless of how long the shareholders have held such Funds' shares and whether
such gains are received in cash or reinvested in additional shares. The Money
Market Funds do not expect to realize long-term capital gains and, therefore, do
not expect to distribute any capital gain dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
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withholding results in overpayment of tax. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
Portions of each Fund's investment income may be subject to foreign income taxes
withheld at their source. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. Generally, more than 50% of
the value of the total assets of each Fund will consist of securities of foreign
issuers, and therefore each Fund may elect to "pass through" to its shareholders
these foreign taxes, if any. In such event each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income taxes for such amount.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
Asset-Backed Securities: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets 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. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be primarily a function of current market interest rates, although other
economic and demographic factors may be involved. For example, falling interest
rates generally result in an increase in the rate of prepayments of mortgage
loans while rising interest rates generally decrease the rate of prepayments. An
acceleration in prepayments in response to sharply falling interest rates will
shorten the security's average maturity and limit the potential appreciation in
the security's value relative to a conventional debt security. Consequently,
asset-backed securities are not as effective in locking in high, long-term
yields. Conversely, in periods of sharply rising rates, prepayments are
generally slow, increasing the security's average life and its potential for
price depreciation.
Mortgage-backed securities: Mortgage-backed securities represent an ownership
interest in a pool of residential mortgage loans, the interest in which is in
most cases issued and guaranteed by an agency or instrumentality of the U.S.
Government, though not necessarily by the U.S. Government itself.
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 GNMA, by FNMA and 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. Each mortgage loan included in the pool is either
insured by the Federal Housing Administration ("FHA") or guaranteed by the
Veterans Administration ("VA").
The average life of a GNMA Certificate 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 on the greater part of
princi-
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pal invested far in advance of the maturity of the mortgages in the pool.
Foreclosures impose no risk to principal investment because of the GNMA
guarantee.
As the prepayment rates of individual mortgage pools will vary widely, it is not
possible to accurately predict the average life of a particular issue of GNMA
Certificates. However, statistics published by the FHA indicate that the average
life of a single-family dwelling mortgage with a 25- to 30-year maturity, the
type of mortgage which backs most GNMA Certificates, is approximately 12 years.
It is therefore customary practice to treat GNMA Certificates as 30-year
mortgage-backed securities which prepay fully in the twelfth year.
As a consequence of the fees paid to GNMA and the issuer of GNMA Certificates,
the coupon rate of interest of GNMA Certificates is lower than the interest paid
on the VA-guaranteed or FHA-insured mortgages underlying the Certificates.
The yield which will be earned on GNMA Certificates 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.
Due to the large numbers of GNMA Certificates outstanding and active
participation in the secondary market by securities dealers and investors, GNMA
Certificates are highly liquid instruments.
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.
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.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
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. Because SMBS were only recently introduced, established trading
markets for these securities have not yet been developed.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as the result of mortgage
prepayments, mortgage refinancings, or foreclosures. The rate of mortgage
prepayments, and hence the average life of the certificates, will be a function
of the level of interest rates, general economic conditions, the location and
age of the mortgage and other social and demographic conditions. Such
prepayments are passed through to the registered holder with the regular monthly
payments of principal and interest and have the effect of reducing future
payments. Estimated average life will be determined by the Adviser and used for
the purpose of determining the average weighted maturity of the Funds. For
additional information concerning mortgage-backed securities, see the related
SAI.
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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 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 or partnerships.
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. In addition, such securities generally will have
remaining estimated lives at the time of purchase of five years or less.
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.
Bank Instruments: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
The Nations Prime Fund may invest up to 100% of its assets in obligations issued
by banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. The Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar obligations, Yankee dollar obligations, and other foreign obligations
involve special investment risks, including the possibility that liquidity could
be impaired because of future political and economic developments, the
obligations may be less marketable than comparable domestic obligations of
domestic issuers, a foreign jurisdiction might impose withholding taxes on
interest income payable on such obligations, deposits may be seized or
nationalized, foreign governmental restrictions such as exchange controls may be
adopted which might adversely affect the payment of principal of and interest on
such obligations, the selection of foreign obligations may be more difficult
because there may be less publicly available information concerning foreign
issuers, there may be difficulties in enforcing a judgment against a foreign
issuer or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign issuers may differ from those applicable
to domestic issuers. In addition, foreign banks are not subject to examination
by U.S. Government agencies or instrumentalities.
Borrowings: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
bor-
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row money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. In addition, the Funds may use reverse
repurchase agreements for the purpose of investing the proceeds in tri-party
repurchase agreements. Generally, the effect of such a transaction is that a
Fund can recover all or most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase agreement, while it will be
able to keep the interest income associated with those portfolio securities.
Such transactions are only advantageous if the interest cost to the Funds of the
reverse repurchase transaction is less than the cost of obtaining the cash
otherwise.
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. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. A Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Fund does not establish and
maintain a segregated account (as described above). 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
Commercial Instruments: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations 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 objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic
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adjustments in the interest rate, and variable and floating rate instruments.
Convertible Securities, Preferred Stock, and Warrants: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
Fixed Income Investing: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
Foreign Currency Transactions: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Fund either enters into these transactions on a spot (i.e., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted.
Foreign Securities: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
Futures, Options and Other Derivative Instruments: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market
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conditions or does not employ the appropriate strategy with respect to these
instruments, a Fund could be left in a less favorable position. Additional risks
inherent in the use of futures, options, forward contracts and swaps include:
imperfect correlation between the price of futures, options and forward
contracts and movements in the prices of the securities or currencies being
hedged; the possible absence of a liquid secondary market for any particular
instrument at any time; and the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences. A Fund may not purchase put
and call options which are traded on a national stock exchange in an amount
exceeding 5% of its net assets. Further information on the use of futures,
options and other derivative instruments, and the associated risks, is contained
in the SAIs.
Guaranteed Investment Contracts: Guaranteed investment contracts, investment
contracts or funding agreements (each referred to as a "GICs") 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.
Illiquid Securities: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. The Non-Money Market Funds will not
hold more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser
acting under guidelines approved and monitored by such Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
Interest Rate Transactions: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, i.e. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
Lower-Rated Debt Securities: Nations Equity Income may invest in lower-rated
debt securities. Lower rated, high-yielding securities are those rated "Ba" or
"B" by Moody's or "BB" or "B" by S&P which are commonly referred to as "junk
bonds." These bonds provide
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poor protection for payment of principal and interest. Lower-quality bonds
involve greater risk of default or price changes due to changes in the issuer's
creditworthiness than securities assigned a higher quality rating. These
securities are considered to have speculative characteristics and indicate an
aggressive approach to income investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
Money Market Instruments: With respect to Non-Money Market Funds, the term
"money market instruments" refers to instruments with remaining maturities of
one year or less. With respect to Money Market Funds, the term "money market
instruments" refers to instruments with remaining maturities of 397 days or
less, or instruments subject to demand features or resets if the remaining
maturity is more than 397 days. Money market instruments may include, among
other instruments, certain U.S. Treasury Obligations, U.S. Government
Obligations, bank instruments, commercial instruments, repurchase agreements and
municipal securities. Such instruments are described in this Appendix A.
Municipal Securities: 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.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases", and
units of participation in trusts holding pools of tax exempt leases. 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. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. 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.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. 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.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and
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does not intend to exercise its rights thereunder for trading purposes.
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.
Other Investment Companies: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
Real Estate Investment Trusts: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
Repurchase Agreements: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
Securities Lending: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in their
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
Short-Term Trust Obligations: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by such trusts,
either from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trusts. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
Stock Index, Interest Rate and Currency Futures Contracts: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is
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not regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. Government Obligations: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
e.g., GNMA certificates; in other cases interest and principal are not
guaranteed, e.g., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law. The market value of U.S. Government
Obligations may fluctuate due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
Obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government Obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
Variable- and Floating-Rate Instruments: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. Certain Funds may
invest in securities with demand features where (a) the security or its issuer
has received a short-term rating from an NRSRO; and (b) the issuer of the demand
featuer, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered illiquid if there is no secondary market for such security.
When-Issued, Delayed Delivery and Forward Commitment Securities: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB
repre-
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sents the lowest degree of speculation and B a higher degree of
speculation. While such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
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 for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories
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are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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.
For commercial paper, D&P uses the short-term debt ratings described above.
58
<PAGE>
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
59
<PAGE>
Prospectus
PRIMARY A SHARES
JULY 31, 1996
This Prospectus describes NATIONS MANAGED INDEX FUND
(the "Fund") of Nations Fund Trust, an open-end
management investment company in the Nations Fund
Family ("Nations Fund" or "Nations Fund Family").
This Prospectus describes one class of shares of the
Fund -- Primary A Shares.
This Prospectus sets forth concisely the information
about the Fund that a prospective purchaser of
Primary A Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust is contained in a separate
Statement of Additional Information (the "SAI") that
has been filed with the Securities and Exchange
Commission (the "SEC") and is available upon request
without charge by writing or calling Nations Fund at
its address or telephone number shown below. The SAI
, dated July 31, 1996, is incorporated by reference
in its entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser to
the Fund. TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Fund. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Nations
Managed
Index Fund
For Fund information call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Fund
Prospectus Summary 3
Expenses Summary 4
Objective 5
How Objective Is Pursued 5
How Performance Is Shown 7
How The Fund Is Managed 7
Organization And History 9
About Your
Investment
How To Buy Shares 9
How To Redeem Shares 10
How To Exchange Shares 10
How The Fund Values Its Shares 11
How Dividends And Distributions Are Made;
Tax Information 11
Appendix A -- Portfolio Securities 12
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES: Nations Managed Index Fund's
investment objective is to seek, over the long-term, to provide a total
return which (gross of fees and expenses) exceeds the total return of
the Standard & Poor's 500 Composite Stock Price Index.
(Bullet) When consistent with the Fund's objective, the Fund will employ
various techniques to manage capital gain distributions.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Fund.
See "How The Fund Is Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Managed Index Fund declares and
pays dividends from net investment income each calendar quarter. The
Fund's net realized capital gains, including net short-term capital
gains, are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. Investments in the Fund are not insured against loss of principal.
Investments by the Fund in common stocks and other equity securities
are subject to stock market risk, which is the risk that the value of
the stocks the Fund holds may decline over short or even extended
periods. Certain of the Fund's permissible investments may constitute
derivative securities. Certain types of derivative securities can,
under certain circumstances, significantly increase an investor's
exposure to market or other risks. For a discussion of these and other
factors, see "How Objective Is Pursued -- Risk Considerations" and
"Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Fund. The
following table summarizes shareholder transaction and operating expenses for
Primary A Shares of the Fund. The Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
PRIMARY A SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Index Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
<S> <C>
Management Fees .50%
All Other Expenses .25%
Total Operating Expenses .75%
</TABLE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Primary A Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Index Fund
1 Year $28
3 Years $24
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Primary A Shares will bear either directly or indirectly. The figures in the
above table are based on estimates for the fiscal year. For a more complete
description of the Fund's operating expenses, see "How The Fund Is Managed."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
4
<PAGE>
Objective
Nations Managed Index Fund's investment objective is to seek, over the
long-term, to provide a total return which (gross of fees and expenses) exceeds
the total return of the Standard & Poor's 500 Composite Stock Price Index.
How Objective Is Pursued
NATIONS MANAGED INDEX FUND: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the "Index")1.
The S&P 500 Index is a value weighted index consisting of 500 common stocks
chosen for market size, liquidity and industry group repres-
entation.
The Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 500 Index while
minimizing the downside risk of underperforming the index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multifactor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration measure a stock relative to others in the same industry. Each stock
is assigned a ranking from 1 to 10 (best to worst). The Adviser then screens out
the lower rated stocks resulting in a portfolio of 300 to 350 holdings that
capture the investment characteristics of the Index.
In addition, when consistent with the Fund's investment objective, the Fund will
employ various techniques to manage capital gain distributions. These techniques
include utilizing a share identification methodology whereby the Fund will
specifically identify each lot of shares of portfolio securities that it holds,
which will allow the Fund to sell first those specific shares with the highest
tax basis in order to reduce the amount of recognized capital gains as compared
with a sale of identical portfolio securities, if any, with a lower tax basis.
The Fund will sell first those shares with the highest tax basis only when it is
in the best interest of the Fund to do so, and reserves the right to sell other
shares when appropriate. In addition, the Fund may, at times, sell portfolio
securities in order to realize capital losses. Such capital losses would be used
to offset realized capital gains thereby reducing capital gain distributions.
Additionally, the Adviser will, consistent with the multi-factor valuation model
discussed above, employ a low portfolio turnover strategy designed to defer the
realization of capital gains.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event the Fund will invest at least
65% of its total assets, in common stocks which are included in the S&P 500
Index. The Fund is expected, however, to maintain a position in high-quality
short-term debt securities and money market instruments to meet redemption
requests. If the Adviser believes that market conditions warrant a temporary
defensive posture, the Fund may invest without limitation in high-quality
short-term debt securities and money market instruments. These securities and
money market instruments may include domestic and foreign commercial paper,
certificates of deposit, bankers' acceptances and time deposits, U.S. Government
securities and repurchase agreements.
The 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 Commodity Futures
Trading Commission ("CFTC") and options thereon for market exposure risk
management. The Fund may lend its portfolio securities to qualified
institutional investors. The Fund also may invest in restricted, private
placement and other illiquid securities. In addition, the Fund may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied, on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market performance. S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein.
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
5
<PAGE>
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate for the Fund will not exceed 25%.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of the Fund, there is no assurance that it will be able to do so. No
single fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in the Fund are not insured against loss
of principal.
Investments by the Fund in common stocks and other equity securities are subject
to stock market risk. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Fund's permissible investments may 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 the Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Fund's investments in particular instruments, see
"Appendix A -- Portfolio Securities."
The techniques employed by the Adviser to seek to manage capital gain
distributions will generally only have the effect of deferring the realization
of capital gains. For example, to the extent that the capital gains recognized
on a sale of portfolio securities arise from the sale of specifically-identified
securities with higher tax bases, subsequent sales of the same portfolio
securities will be calculated by reference to the lower tax basis securities
that remain in the portfolio. Under this scenario, an investor who purchases
shares of the Fund after the first sale could receive capital gain distributions
that are higher than the distributions that would have been received if this
methodology had not been used. Therefore, certain investors actually could be
disadvantaged by the techniques employed by the Fund to seek to manage capital
gain distributions, depending on the timing of their purchase of Fund shares.
Even if there are no subsequent sales, upon a redemption or exchange of Fund
shares an investor will have to recognize gain to the extent that the net asset
value of Fund shares at such time exceeds such investor's tax basis in his or
her Fund shares. As a result, the taxable gain realized by an investor upon a
redemption or exchange may be greater (or the loss realized at such time may be
less) than otherwise would have been realized. The Fund's low portfolio turnover
strategy will have the same effect.
The various techniques employed by the Fund to manage capital gain distributions
may result in the accumulation of substantial unrealized gains in the Fund's
portfolio. Moreover, the realization of capital gains is not entirely within the
Fund's control because it is at least partly dependent on shareholder purchase
and redemption activity. Capital gain distributions may vary considerably from
year-to-year.
INVESTMENT LIMITATIONS: The Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry (for purposes of this limitation, U.S. Government securities are
not considered members of any industry.)
2. Make loans, except that the Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of the Fund's assets, the Fund will not hold
more than 10% of the voting securities of any issuer.
The investment objective and policies of the Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of the Fund change, shareholders should consider whether
the Fund remains an appropriate investment in light of their current position
and needs.
In order to register the Fund's shares for sale in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should the Fund determine that any
such commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
6
<PAGE>
How Performance Is Shown
From time to time the Fund may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares of the Fund may be calculated on an average annual total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, assuming the reinvestment of all dividend
and capital gain distributions. Aggregate total return reflects the total
percentage change in the value of the investment over the measuring period again
assuming the reinvestment of all dividends and capital gain distributions. Total
return may also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of the Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing the Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Fund with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary A Shares, the Fund offers Primary B, Investor A and
Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees and other expenses, which may cause the performance
of a class to differ from the performance of the other classes. Performance
quotations will be computed separately for each class of the Fund's shares. Any
fees charged by an institution directly to its customers' accounts in connection
with investments in the Fund will not be included in calculations of total
return or yield. The Fund's annual report contains additional performance
information and is available upon request without charge from the Fund's
distributor or your Institution, as defined below.
How The Fund Is Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Board of Trustees. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Fund. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Fund. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and in accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, the Fund may invest in
securities of companies with which NationsBank has a lending relationship. For
the services provided and expenses assumed pursuant to an Investment Advisory
Agreement, NBAI is entitled to receive advisory fees, com-
7
<PAGE>
puted daily and paid monthly, at the annual rate of 0.50% of the average daily
net assets of the Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund.
For the services provided and the expenses assumed pursuant to a Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.10% of the average daily net assets of the
Fund.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund and Nations
Managed Index Fund. He has been Portfolio Manager for Nations Managed Index Fund
since its inception. Prior to assuming his position with TradeStreet, he was
Vice President and Structured Products Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1990. His
past experience includes portfolio management, derivatives management and
quantitative analysis for the Investment Management Group at NationsBank and
Sovran Bank of Tennessee. Mr. Golden received a B.B.A. in Finance from Belmont
University. He is a Chartered Financial Analyst candidate and a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such federal or state statutes, regulations and
judicial or administrative decisions or interpretations, could prevent such
entities from continuing to perform, in whole or in part, such services. If any
such entity were prohibited from performing any of such services, it is expected
that new agreements would be proposed or entered into with another entity or
entities qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Fund, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Fund.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Fund including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Fund.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at an
annual rate of up to 0.10% of the Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Fund's administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Fund's average daily net
assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Fund. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Primary A Shares of the Fund.
First Data serves as the Transfer Agent for the Fund's Primary A Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of the Fund. NationsBank of Texas, which also serves as
the sub-transfer agent for the Fund's Primary A Shares, is located at 1401 Elm
Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of the Fund, (ii)
$10.00 per repurchase collateral transaction by the Fund, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Fund. In return for
providing sub-transfer agency services for the Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
8
<PAGE>
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; Trustees' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Any general expenses of
Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees determines is fair and
equitable.
Organization And History
The Fund is a member of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently consists of more than
43 distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Fund currently
offers four classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares and Investor C Shares. This Prospectus relates only to the Primary A
Shares of Nations Managed Index Fund of Nations Fund Trust. To obtain additional
information regarding the Fund's other classes of shares which may be available
to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
certain classes of shares of Nations Fund Trust and therefore could be
considered to be a controlling person of these classes and series of Nations
Fund Trust for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
About Your Investment
How To Buy Shares
Primary A Shares may be sold to financial institutions (including NationsBank
and its affiliated and correspondent banks) and fee-based planners acting on
behalf of their customers, employee benefit plans, charitable foundations and
endowments. Primary A Shares may, at times, be sold to other similar categories
of investors.
Primary A Shares are sold at net asset value without the imposition of a sales
charge. Financial institutions
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("Institutions") acting on behalf of their customers ("Customers") may establish
certain procedures for processing Customers' purchase orders and may charge
their Customers for services provided to them in connection with their
investments.
Purchases may be effected on days on which the New York Stock Exchange (the
"Exchange") is open for business (a "NYSE Business Day"). Unless otherwise
specified, the term Business Day in this Prospectus refers to a NYSE Business
Day.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary A Shares is recorded on the books of the Fund, and share certificates
are not issued. It is the responsibility of Institutions, when applicable, to
record beneficial ownership of Primary A Shares and to reflect such ownership in
the account statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Primary A Shares in the Fund
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Fund's Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Institution or investor placing the order. Payment for orders which
are not received or accepted will be returned after prompt inquiry to the
sending Institution or investor. Primary A Shares are purchased at the net asset
value per share next determined after receipt of the order by Stephens or by the
Transfer Agent.
Institutions are responsible for transmitting orders for purchases of Primary A
Shares by their Customers, and for delivering required funds, on a timely basis.
It is Stephens' responsibility to transmit orders it receives to Nations Fund.
How To Redeem Shares
Nations Fund may redeem a shareholder's Primary A Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a Customer has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the Customer may
be obliged to redeem all or a part of his or her Primary A Shares in the Fund to
the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Institutions are responsible for transmitting redemption orders to Stephens or
to the Transfer Agent and for crediting their Customers' accounts with the
redemption proceeds on a timely basis. It is the responsibility of Stephens to
transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary A Shares and may establish additional procedures.
Information concerning any charges or procedures is available from the
Institutions. Redemption orders are effected at the net asset value per share
next determined after acceptance of the order by Stephens or by the Transfer
Agent. Redemption proceeds are normally remitted in federal funds wired to the
redeeming Institution or investor within three Business Days following receipt
of the order.
How To Exchange Shares
The exchange feature enables a shareholder of Primary A Shares of the Fund to
acquire Primary A Shares of another fund when that shareholder believes that a
shift between funds is an appropriate investment decision. An exchange of
Primary A Shares for Primary A Shares of another fund is made on the basis of
the next calculated net asset value per share of each fund after the exchange
order is received.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be termi-
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nated or revised at any time by Nations Fund upon such notice as may be required
by applicable regulatory agencies (presently 60 days for termination or material
revision), provided that the exchange feature may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
If you have telephone exchange privileges, during periods of significant
economic or market change, telephone exchanges may be difficult to complete. In
such event, shares may be exchanged by mailing your request directly to the
entity through which the original shares were purchased. Investors should
consult their Institution or Stephens for further information regarding
exchanges.
Primary A Shares may be exchanged by directing a request directly to the
Institution, if any, through which the original Primary A Shares were purchased
or in other cases Stephens or the Transfer Agent. Investors should consult their
Institution, Stephens or the Transfer Agent for further information regarding
exchanges. Your exchange feature may be governed by your account agreement with
your Institution.
How The Fund Values Its Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Fund are valued as of the close of regular trading on
the Exchange (currently 4:00 p.m., Eastern time) on each NYSE Business Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, Presidents' Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities are valued at their fair value following procedures approved by the
Trustees.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Even though the Fund seeks to manage taxable
distributions, the Fund may be expected to earn and distribute taxable income
and may also be expected to realize and distribute capital gains from time to
time. Dividends from net investment income are declared and paid each calendar
quarter by the Fund. The Fund's net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Primary A Shares of the Fund are eligible to receive dividends when declared,
provided, however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
The net asset value of Primary A Shares will be reduced by the amount of any
dividend or distribution. Dividends and distributions are paid in cash within
five Business Days of the end of the quarter to which the dividend relates.
Certain purchasing Institutions may provide for the reinvestment of dividends in
additional Primary A Shares of the same Fund. Dividends and distributions
payable to a shareholder are paid in cash within five Business Days after a
shareholder's complete redemption of his or her Primary A Shares in the Fund.
TAX INFORMATION: The Fund intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves the Fund of liability for Federal income tax to the
extent its earnings are distributed in accordance with the Code.
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The Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by the Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares.
Corporate shareholders may be entitled to the dividends-received deduction for
distributions from the Fund's investment in the stock of domestic corporations
to the extent of the total qualifying dividends received by the Fund.
Substantially all of the net realized long-term capital gains of the Fund, if
any, will be distributed at least annually to the Fund's shareholders. The Fund
will generally have no tax liability with respect to such gains, and the
distributions will be taxable to such shareholders who are not currently exempt
from Federal income tax as long-term capital gains, regardless of how long the
shareholders have held the Fund's shares and whether such gains are received in
cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number or has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Fund
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Fund and its shareholders.
It is not intended as a substitute for careful tax planning. Accordingly,
potential investors should consult their tax advisors with specific reference to
their own tax situations. Further tax information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How Objective Is Pursued" section of the Prospectus
identifies the Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
BORROWINGS: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Fund may
borrow money from banks for temporary purposes in amounts of up to one-third of
its total assets, provided that borrowings in excess of 5% of the value of the
Fund's total assets must be repaid prior to the purchase of portfolio
securities.
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.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objective. In addition, the Fund 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 the Fund. Commercial instruments include
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<PAGE>
variable-rate master demand notes, which are unsecured instruments that permit
the indebtedness thereunder to vary and provide for periodic adjustments in the
interest rate, and variable- and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: The Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FOREIGN CURRENCY TRANSACTIONS: The Fund may enter into foreign currency exchange
transactions to convert foreign currencies to and from the U.S. dollar. The Fund
either enters into these transactions on a spot (I.E., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or uses forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract is an obligation by the Fund to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract.
Foreign currency hedging transactions are an attempt to protect the 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. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Fund may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect the Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options) and options on foreign
currencies, and investing in futures contracts for the purchase or sale of
instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, the Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. The Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 15% of the value of its net assets in securities that are illiquid or such
lower percentage as may be required by the states in which the Fund sells its
shares. Repurchase agreements, time deposits and guaranteed investment contracts
that do not provide for payment to the Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, the Fund may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A and Section 4(2) under the 1933 Act. Any
such security will not be considered illiquid so long as it is determined by the
Fund's Board of Trustees or the Adviser, acting under guidelines approved and
monitored by the Fund's Board, after considering trading activity, availability
of reliable price information and other relevant information, that an adequate
trading market exists for that security. To the extent that, for a period of
time, qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A and Section 4(2), the level of illiquidity of a Fund
holding such securities may increase during such period.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
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OTHER INVESTMENT COMPANIES: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the 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 the Fund bears directly in connection with its
own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into repurchase agreements jointly with other
investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 30% of the
value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Fund may purchase
and sell futures contracts and related options with respect to non-U.S. stock
indices, non-U.S. interest rates and foreign currencies, that have been approved
by the CFTC for investment by U.S. investors, for the purpose of hedging against
changes in values of the Fund's securities or changes in the prevailing levels
of interest rates or currency exchange rates. The contracts entail certain
risks, including but not limited to the following: no assurance that futures
contracts transactions can be offset at favorable prices; possible reduction of
the Fund's total return due to the use of hedging; possible lack of liquidity
due to daily limits on price fluctuation; imperfect correlation between the
contracts and the securities or currencies being hedged; and potential losses in
excess of the amount invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless the Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that the
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
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<PAGE>
Prospectus
PRIMARY B SHARES
JULY 31, 1996
Money Market
Funds
INVESTMENT ADVISER: NationsBanc Advisors, Inc.
SUB-INVESTMENT ADVISER: TradeStreet Investment Associates, Inc.
DISTRIBUTOR: Stephens Inc.
Nations Fund Logo
<PAGE>
Prospectus
PRIMARY B SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund" and
collectively the "Money Market Funds"), of Nations
Fund Trust and Nations Fund, Inc., each an open-end
management investment company in the Nations Fund
Family ("Nations Fund" or "Nations Fund Family").
This Prospectus describes one class of shares of
each Fund -- Primary B Shares (formerly called Trust
B Shares).
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET ASSET
VALUE OF $1.00 PER SHARE. INVESTMENTS IN THE MONEY
MARKET FUNDS ARE NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE
THAT THE MONEY MARKET FUNDS WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the information
about the Funds that a prospective purchaser of
Primary B Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust and Nations Fund, Inc. is
contained in separate Statements of Additional
Information (the "SAIs"), that have been filed with
the Securities and Exchange Commission (the "SEC")
and are available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAIs bear the same
date as this Prospectus and are incorporated by
reference in their entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is sub-
investment adviser to the Funds. As used herein the
"Adviser" shall mean NBAI and/or TradeStreet as the
context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Nations Prime Fund
Nations Treasury Fund
Nations Government
Money Market Fund
Nations Tax Exempt
Fund
For Fund information call:
1-800-626-2275
or write:
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 7
How Objectives Are Pursued 7
How Performance Is Shown 9
How The Funds Are Managed 10
Organization And History 12
About Your Investment
How To Buy Shares 14
Shareholder Servicing Plan 14
How To Redeem Shares 15
How To Exchange Shares 15
How The Funds Value Their Shares 16
How Dividends And Distributions Are Made; Tax
Information 16
Appendix A -- Portfolio Securities 17
Appendix B -- Description Of Ratings 23
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent
with the preservation of capital and the maintenance of
liquidity.
(Bullet) Nations Government Money Market Fund's investment objective
is to seek as high a level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to seek as
high a level of current interest income exempt from Federal
income taxes as is consistent with liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Primary B Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
PRIMARY B SHARES*
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Nations Prime Nations Treasury Government Money
Fund Fund Market Fund
</TABLE>
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Load None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .14% .14% .12%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .16% .16% .18%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) .55% .55% .55%
<CAPTION>
Nations Tax
Exempt Fund
Sales Load Imposed on Purchases None
<S> <C>
Deferred Sales Load None
Management Fees (After Fee Waivers) .13%
<S> <C>
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .17%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements) .55%
</TABLE>
* Primary B Shares are purchased at net asset value per share without the
imposition of a sales charge according to procedures established by the
Institution. Institutions, however, may charge the accounts of their customers
for services provided in connection with the purchase or redemption of shares.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary B Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<S> <C> <C>
Nations Treasury
Nations Prime Fund Fund
1 Year $ 6 $ 6
3 Years $ 18 $ 18
5 Years $ 31 $ 31
10 Years $ 69 $ 69
<CAPTION>
Nations Government Nations Tax Exempt
Money Market Fund Fund
1 Year $ 6 $ 6
3 Years $ 18 $ 18
5 Years $ 31 $ 31
10 Years $ 69 $ 69
</TABLE>
4
<PAGE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Primary B Shares will bear either directly or indirectly. The "Other Expenses"
figures contained in the above table are based on estimated amounts for each
Fund's current fiscal year and reflect anticipated fee waivers and
reimbursements. There is no assurance that these fee waivers and reimbursements
will continue beyond the current fiscal year. If fee waivers and/or
reimbursements are discontinued, the amounts contained in the "Examples" above
may increase. For more complete descriptions of the Funds' operating expenses,
see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees", "Other
Expenses" and "Total Operating Expenses" for Primary B Shares of the indicated
Fund would have been as follows: Nations Prime Fund -- .20%, .16% and .61%,
respectively; Nations Treasury Fund -- .20%, .16% and .61%, respectively;
Nations Government Money Market Fund -- .40%, .18% and .83%, respectively; and
Nations Tax Exempt Fund -- .40%, .17% and .82%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT THE PERIOD
NATIONS PRIME FUND
<TABLE>
<S> <C>
PERIOD
ENDED
PRIMARY B SHARES 03/31/96(a)
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0447
Dividends from net investment income (0.0447)
Total dividends and distributions (0.0447)
Net asset value, end of period $ 1.00
Total return++ 4.57%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 96,305
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 5.37%+
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.62%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0442
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 5/31/95*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0474
Dividends from net investment income (0.0474)
Total dividends and distributions (0.0474)
Net asset value, end of period $ 1.00
Total return++ 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 126,120
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 4.98%+
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.63%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0466
</TABLE>
* Nations Prime Fund Primary B Shares commenced operations on June 16, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<S> <C>
PERIOD
ENDED
PRIMARY B SHARES 03/31/96(a)
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0437
Dividends from net investment income (0.0437)
Distributions from net realized capital gains (0.0000)#
Total dividends and distributions (0.0437)
Net asset value, end of period $ 1.00
Total return++ 4.46%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 47,488
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 5.27%+
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.62%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0432
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 05/31/95*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0449
Dividends from net investment income (0.0449)
Distributions from net realized capital gains (0.0000)#
Total dividends and distributions (0.0449)
Net asset value, end of period $ 1.00
Total return++ 4.56%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 56,815
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 4.74%+
Ratio of operating expenses to average net assets without waivers and/or expense reimbursements 0.60%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0444
</TABLE>
* Nations Treasury Fund Primary B Shares commenced operations on June 16,
1994.
# Amount represents less than $0.0001.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY B SHARES 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0165 0.0533
Distributions:
Dividends from net investment income (0.0165) (0.0533)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.0165) (0.0533)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 1.66% 5.45%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 31,581 $ 27,122
Ratio of operating expenses to average net assets 0.55%+ 0.55%
Ratio of net investment income to average net assets 4.95%+ 5.33%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.84%+ 0.82%
Net investment income per share without waivers and/or expense
reimbursements $ 0.0155 $ 0.0506
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0200
Distributions:
Dividends from net investment income (0.0200)
Distributions from net realized capital gains (0.0000)#
Total dividends and distributions (0.0200)
Net asset value, end of period $ 1.00
Total return++ 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 72,747
Ratio of operating expenses to average net assets 0.55%+
Ratio of net investment income to average net assets 3.54%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.84%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0186
</TABLE>
* Nations Government Money Market Fund Primary B Shares commenced operations on
June 16, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Value represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
6
<PAGE>
FOR A PRIMARY B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TAX EXEMPT FUND
<TABLE>
<S> <C> <C>
PERIOD YEAR
ENDED ENDED
PRIMARY B SHARES 03/31/96(a) 11/30/95
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0104 0.0335
Dividends from net investment income (0.0104) (0.0335)
Total dividends and distributions (0.0104) (0.0335)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 1.04% 3.39%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 9,370 $ 11,666
Ratio of operating expenses to average net assets 0.55%+ 0.55%
Ratio of net investment income to average net assets 3.10%+ 3.37%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.83%+ 0.82%
Net investment income per share without waivers and/or expense
reimbursements $ 0.0095 $ 0.0309
<CAPTION>
PERIOD
ENDED
PRIMARY B SHARES 11/30/94*
Operating performance:
Net asset value, beginning of period $ 1.00
Net investment income 0.0116
Dividends from net investment income (0.0116)
Total dividends and distributions (0.0116)
Net asset value, end of period $ 1.00
Total return++ 1.17%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18,207
Ratio of operating expenses to average net assets 0.52%+
Ratio of net investment income to average net assets 2.34%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.84%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0102
</TABLE>
* Nations Tax Exempt Fund Shares commenced operations on June 16, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, 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 or instrumentalities ("U.S. Government Obligations"), bank and
commercial instruments that may be available in the money markets, high quality
short-term taxable obligations issued by state and local governments, their
agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified First Tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and in instruments issued by trusts or certain partnerships, including
pass-through certificates representing participation in, or debt instruments
backed by, the securities and other assets owned by such trusts or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations
7
<PAGE>
and repurchase agreements secured by such obligations. The Fund also may
purchase securities issued by other investment companies, consistent with the
Fund's investment objective and policies, and may engage in reverse repurchase
agreements. The Fund also may invest in obligations the principal and interest
of which are backed by the full faith and credit of the United States
Government, provided that such Fund shall, under normal market conditions,
invest at least 65% of its total assets in U.S. Treasury bills, notes and bonds
and other instruments issued directly by the U.S. Government. In addition, the
Fund may lend its portfolio securities to qualified institutional investors. For
more information concerning these instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. In addition, the Fund
may lend its portfolio securities to qualified institutional investors. For more
information concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the issuer or bond counsel, is
exempt from regular Federal income tax ("Municipal Securities"). The Fund will
not knowingly purchase securities the interest on which is subject to such tax.
A portion of the Fund's assets, however, may be invested in private activity
bonds, the interest on which may be treated as a specific tax preference item
under the Federal alternative minimum tax. See "How Dividends and Distributions
Are Made; Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"), or
Thomson BankWatch, Inc. ("BankWatch") or Aa or higher by Moody's Investors
Service, Inc. ("Moody's"), in the case of bonds; rated "A" or higher by D&P,
Fitch, S&P, IBCA, BankWatch or Moody's in the case of certain bonds which are
unrated securities (I.E. lacking a short-term rating from the requiste number of
nationally recognized statistical rating organizations; rated "D-1" or higher by
D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or "MIG-1" by Moody's in the case
of notes; rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P,
or "VMIG-1" by Moody's in the case of variable-rate demand notes; or rated "D-1"
or higher by D&P, "F-1" or higher by Fitch, "A-1" or higher by S&P or "Prime-1"
by Moody's in the case of tax-exempt commercial paper. D&P, Fitch, S&P, Moody's,
IBCA and BankWatch are the six nationally recognized statistical rating
organizations (collectively, "NRSROs"). Securities that are unrated at the time
of purchase will be determined to be of comparable quality by the Adviser
pursuant to guidelines approved by Nations Fund Trust's Board of Trustees. The
applicable Municipal Securities ratings are described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund 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 or partnerships. For more information
concerning the Fund's investments, see "Appendix A."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds'
invest-
<PAGE>
ment in particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments in obligations of domestic banks.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations.
The investment objective and policies of the Funds, unless otherwise specified,
may be changed without a vote of shareholders. If the investment objective or
policies of a Fund change, shareholders should consider whether the Fund remains
an appropriate investment in light of their current position and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost, investments must be in
accordance with the requirements of Rule 2a-7 under the Investment Company Act
of 1940, as amended ("1940 Act"), some of which are described below. A Money
Market Fund is limited to acquiring obligations with a remaining maturity of 397
days or less, or obligations with a remaining maturity of more than 397 days,
provided such obligations are subject to demand features or resets and to
maintaining a dollar-weighted average portfolio maturity of 90 days or less.
Quality requirements generally limit investments to U.S. dollar-denominated
instruments determined to present minimal credit risks and that at the time of
acquisition are rated in the first or second rating categories (known as "first
tier" and "second tier" securities, respectively) by the required number of
NRSROs (at least two or, if only one NRSRO has rated the security, that one
NRSRO) or, if unrated by any NRSRO, are (i) comparable in priority and security
to a class of short-term securities of the same issuer that has the required
rating, or (ii) determined to be comparable in quality to securities having the
required rating. The diversification requirements provide generally that a Money
Market Fund may not at the time of acquisition invest more than 5% of its assets
in securities of any one issuer except that up to 25% of total assets may be
invested in the first tier securities of a single issuer for three business
days. Additionally, (except for Nations Tax Exempt Fund) no more than 5% of
total assets may be invested, at the time of acquisition, in second tier
securities in the aggregate, and any investment in second tier securities of one
issuer is limited to the greater of 1% of total assets or one million dollars.
Securities issued by the U.S. Government, its agencies, authorities or
instrumentalities are exempt from the quality requirements, other than minimal
credit risk. In the event that a Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Fund's
own restrictions will govern.
9
<PAGE>
How Performance Is Shown
From time to time the Money Market Funds may advertise the yield and effective
yield on a class of shares and the Nations Tax Exempt Fund also may advertise
the tax-equivalent yield of a class of shares. YIELD, EFFECTIVE YIELD AND
TAX-EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED
TO INDICATE FUTURE PERFORMANCE. The "yield" of a class of shares in a Fund
refers to the income generated by an investment in such class over a seven-day
period identified in the advertisement. This income is then "annualized." That
is, the amount of income generated by the investment during that week is assumed
to be generated each week over a 52-week period and is shown as a percentage of
the investment. The "effective yield" is calculated similarly, but, when
annualized, the income earned by an investment in a class of shares in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary B Shares, the Funds offer Primary A, Investor A, Investor
B, Investor C and Investor D Shares. Each class of shares may bear different
sales charges, shareholder servicing fees and other expenses, which may cause
the performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. Any fees charged by an institution and/or servicing agent directly to
its customers' accounts in connection with investments in the Funds will not be
included in calculations of yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or your Institution, as defined below.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Trustees and Directors, respectively.
Nations Fund Trust's SAI contains the names of and general background
information concerning each Trustee of Nations Fund Trust. Nations Fund, Inc.'s
SAI contains the names of and general background information concerning each
Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned subsidiary of NationsBank Corporation, a bank holding company
organized as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. With respect to the Nations Tax Exempt
Fund, the Adviser is authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, in the case
of agency transactions, financial institutions which are affiliated with the
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Adviser or which have sold shares in such Fund, if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms. From time to time, to the extent
consistent with its investment objective, policies and restrictions, each Fund
may invest in securities of companies with which NationsBank has a lending
relationship. For the services provided and expenses assumed pursuant to various
Investment Advisory Agreements, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.25% of the first $250
million of the combined average daily net assets of both Nations Prime Fund and
Nations Treasury Fund, plus 0.20% of the combined average daily net assets of
such Funds in excess of $250 million; and 0.40% of the average daily net assets
of each of Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
asets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Fund's average daily net
assets: Nations Prime Fund -- 0.18%; and Nations Treasury Fund -- 0.18%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; and Nations Treasury Fund -- 0.18%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.055%; Nations Tax Exempt Fund -- 0.055%;
Nations Prime Fund -- 0.055%; and Nations Treasury Fund -- 0.055%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysts.
Sandra L. Duck is Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager for Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements 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 stat-
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utes, 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 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.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine net asset value per share and
dividends, preparing tax returns and financial statements and maintaining the
portfolio records and certain of the general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the indicated rates of the
following Funds' average daily net assets: Nations Government Money Market Fund
and Nations Tax Exempt Fund -- 0.09%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
and Nations Treasury Fund -- 0.05%.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens that provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Primary B Shares of the Funds.
First Data serves as the Transfer Agent for each Fund's Primary Shares.
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the assets
of each Fund. The Custodian, which also serves as the sub-transfer agent for
each Fund's Primary B Shares, is located at 1401 Elm Street, Dallas, Texas
75202, and is a wholly owned subsidiary of NationsBank Corporation. In return
for providing custodial services, the Custodian is entitled to receive, in
addition to out-of-pocket expenses, fees payable monthly (i) at the rate of
1.25% of 1% of the average daily net assets of each Fund, (ii) $10.00 per
repurchase collateral transaction by the Funds, and (iii) $15.00 per purchase,
sale and maturity transaction involving the Funds. In return for providing
sub-transfer agency services for the Primary B Shares of Nations Fund, the
Transfer Agent is entitled to receive an annual fee from First Data of $251,000.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund are deducted from the Fund's total
accrued income before dividends are declared. These expenses include, but are
not limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; fees (including fees paid to Nations Fund's trustees, directors
and officers); federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodian and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Primary B Shares also bear certain shareholder servicing
costs. Any general expenses of Nations Fund Trust and/or Nations Fund, Inc. that
are not readily identifiable as belonging to a particular investment portfolio
are allocated among all portfolios in the proportion that the assets of a
portfolio bears to the assets of Nations Fund Trust and/or Nations Fund, Inc. or
in such other manner as the Board of Trustees or Board of Directors determines
is fair and equitable.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares, Investor C Shares and Investor D Shares. This
Prospectus relates only to the Primary B Shares of Nations Government Money
Market Fund and Nations Tax Exempt Fund of Nations Fund Trust. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
1940 Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Primary B Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Institution (as defined
below) or Nations Fund at 1-800-626-2275.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore may be considered to be a controlling person of
Nations Fund, Inc. for purposes of the 1940 Act. For more detailed information
concerning the
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percentage of each class or series over which NationsBank and its affiliates
possessed or shared power to dispose or vote as of a certain date, see Nations
Fund, Inc.'s SAI. It is anticipated that Nations Fund, Inc. will not hold annual
shareholder meetings on a regular basis unless required by the 1940 Act or
Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
Primary B Shares may be purchased through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank)
("Institutions") that have entered into selling agreements with Stephens.
Primary B Shares are purchased at net asset value per share without the
imposition of a sales charge according to procedures established by the
Institution. Institutions, however, may charge the accounts of their customers'
("Customers") accounts for services provided in connection with the purchase of
shares. Purchases may be effected on days on which the Federal Reserve Bank of
New York is open for business (a "Business Day").
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
The Institutions have entered into Servicing Agreements whereby they will
provide various shareholder services for their Customers that own Primary B
Shares. From time to time, Nations Fund may voluntarily reduce the maximum fees
payable for shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary B Shares is recorded on the books of the Funds, and share certificates
are not issued. It is the responsibility of Institutions to record beneficial
ownership of Primary B Shares and to reflect such ownership in the account
statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12:00 noon,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund). A purchase order received by Stephens or the Transfer Agent
after such time will not be accepted; notice thereof will be given to the
Institution placing the order, and any funds received will be returned promptly
to the sending Institution. If federal funds are not available by 4:00 p.m.,
Eastern time, the order will be canceled. Primary B Shares are purchased at the
net asset value per share next determined after receipt of the order by Stephens
or by the Transfer Agent.
Institutions are responsible for transmitting orders for purchases by their
Customers, and delivering required funds, on a timely basis. It is Stephens'
responsibility to transmit orders it receives to Nations Fund.
Shareholder Servicing Plan
The Funds have adopted a Shareholder Servicing Plan (the "Servicing Plan")
pursuant to which Primary B Shares are sold through Institutions which enter
into Servicing Agreements with Nations Fund. The Servicing Agreements require
Institutions to provide shareholder services to their Customers who from time to
time beneficially own Primary B Shares in return for payment by the Fund at a
rate not exceeding 0.25% (on an annualized basis) of the average daily net asset
value of the Primary B Shares beneficially owned by Customers with whom the
Institutions have a servicing relationship. Holders of Primary B Shares will
bear all fees paid to Institutions under the Servicing Plan. The Servicing Plan
does not cover, and the fees thereunder are not payable, to Institutions with
respect to Primary A Shares.
Such shareholder services supplement the services provided by Stephens, TSSG and
the Transfer Agent to shareholders of record. The shareholder services
pro-
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vided by Institutions may include general shareholder liaison services;
processing purchase, exchange, and redemption requests from Customers and
placing orders with Stephens or the Transfer Agent; processing dividend and
distribution payments from the Funds on behalf of Customers; providing
information periodically to Customers showing their positions in Primary B
Shares; providing sub-accounting with respect to Primary B Shares beneficially
owned by Customers or the information necessary for sub-accounting; responding
to inquiries from Customers concerning their investment in Primary B Shares;
arranging for bank wires; and providing such other similar services as may be
reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreement between Institutions
and Nations Fund. See the SAIs for more details on the Servicing Plan.
Nations Fund understands that Institutions may charge fees to their Customers
who are the owners of Primary B Shares in connection with their Customers'
accounts. These fees would be in addition to any amounts which may be received
by an Institution under its Servicing Agreement with Nations Fund. The Servicing
Agreements require an Institution to disclose to its Customers any compensation
payable to the Institution by Nations Fund and any other compensation payable by
Customers in connection with the investment of their assets in Primary B Shares.
Customers of Institutions should read this Prospectus in light of the terms
governing their accounts with their Institutions.
Conflict of interest restrictions may apply to the receipt by Institutions of
compensation from Nations Fund in connection with the investment of fiduciary
assets in Primary B Shares. Institutions, 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, the Department of Labor, or state securities
commissions, are urged to consult their legal advisers before investing such
assets in Primary B Shares.
How To Redeem Shares
Customers may redeem all or part of their Primary B Shares in accordance with
instructions and limitations pertaining to their account at an Institution. It
is the responsibility of the Institutions to transmit redemption orders to
Stephens or to the Transfer Agent and to credit their Customers' accounts with
the redemption proceeds on a timely basis. It is Stephens' responsibility to
transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although the Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary B Shares. Information concerning these services and any
charges are available from the Institutions. Redemption orders are effected at
the net asset value per share next determined after acceptance of the order by
Stephens or by the Transfer Agent.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), and payment will normally be wired the
same day to the Institutions. Nations Fund reserves the right to wire redemption
proceeds within three Business Days after receiving a redemption order if, in
the judgment of NationsBank, an earlier payment could adversely impact a Fund.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Redemption orders will not be accepted by Stephens or by the Transfer Agent
after 3:00 p.m., Eastern time (12:00 noon, Eastern time, with respect to Nations
Tax Exempt Fund and Nations Government Money Market Fund), for execution on that
Business Day.
Nations Fund may redeem a shareholder's Primary B Shares if the balance in such
shareholder's account with the Fund drops below $500 as a result of redemptions,
and the shareholder does not increase the balance to at least $500 on 60 days'
written notice. If a shareholder has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the shareholder
may be obliged to redeem all or a part of his or her Primary B Shares in a Fund
to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
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How To Exchange Shares
The exchange feature enables a shareholder of Primary B Shares of a Fund to
acquire Primary B Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary B Shares for Primary B Shares of another Fund is made on the basis of
the next calculated net asset value per share of each Fund after the exchange
order is received.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
Provided your Institution allows telephone exchanges, during periods of
significant economic or market change, such telephone exchanges may be difficult
to complete. In such event, shares may be exchanged by mailing your request
directly to the Institution through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary B Shares may be exchanged by directing a request directly to the
Institution through which the original Primary B Shares were purchased or in
some cases Stephens or the Transfer Agent. Investors should consult their
Institution or Stephens for further information regarding exchanges. Your
exchange feature may be governed by your account agreement with your
Institution.
How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares are valued as of 3:00 p.m., Eastern time (1:00 p.m., Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund), on each Business Day. Currently, the days on which the Federal
Reserve Bank of New York is closed (other than weekends) are: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Memorial Day (observed),
Independence Day, Labor Day, Columbus Day, Thanksgiving Day and Christmas Day.
The assets in the Money Market Funds are valued based upon the amortized cost
method. Although Nations Fund seeks to maintain the net asset value per share of
these Funds at $1.00, there can be no assurance that their net asset value per
share will not vary.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of each of the
Money Market Funds are declared daily to shareholders at 3:00 p.m., Eastern time
(1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), on the day of declaration. Primary B Shares begin
earning dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Primary B
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Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Transfer Agent and will become effective
with respect to dividends paid after its receipt. Dividends are paid in cash
within five Business Days after a shareholder's complete redemption of his or
her Primary B Shares in a Fund. To the extent that there are any net short-term
capital gains, they will be paid at least annually.
TAX INFORMATION: Each Fund intends to qualify as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves a Fund of liability for Federal income tax
to the extent its earnings are distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an
Individual Retirement Account are generally deferred under the Code.) These
distributions will not qualify for the dividends received deduction for
corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains also may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, the Nations Tax
Exempt Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
Federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund may be taxable to investors under state or local law even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income tax.
If the Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax
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considerations generally affecting the Funds and their shareholders. It is not
intended as a substitute for careful tax planning; investors should consult
their tax advisors with respect to their specific tax situations as well as with
respect to state and local taxes. Further tax information is contained in the
SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets 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. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the SAIs.
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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
The Nations Prime Fund may invest up to 100% of its assets in obligations issued
by banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. The Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar obligations, Yankee dollar obligations and other foreign obligations
involve special investment risks, including the possibility that liquidity could
be impaired because of future political and economic developments, the
obligations may be less marketable than comparable domestic obligations of
domestic issuers, a foreign jurisdiction might impose withholding taxes on
interest income payable on such obligations, deposits may be seized or
nationalized, foreign governmental restrictions such as exchange controls may be
adopted which might adversely affect the payment of principal of and interest on
such obligations, the selection of foreign obligations may be more difficult
because there may be less publicly available information concerning foreign
issuers, there may be difficulties in enforcing a judgment against a foreign
issuer or the accounting, auditing and financial reporting standards, practices
and requirements applicable to foreign issuers may differ from those applicable
to domestic issuers. In addition, foreign banks are not subject to examination
by U.S. Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the
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meeting of redemption requests that otherwise might require the untimely
disposition of securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, the Funds may use reverse repurchase agreements
for the purpose of investing the proceeds in tri-party repurchase agreements.
Generally, the effect of such a transaction is that a Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
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 Fund is 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 Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. A Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if a Fund does not establish and maintain
a segregated account (as described above). Under the requirements of the 1940
Act, a Fund is required to maintain an asset coverage (including the proceeds of
the borrowings) of at least 300% of all borrowings. Depending on market
conditions, a Fund's asset coverage and other factors at the time of a reverse
repurchase, a Fund may not establish a segregated account when the Adviser
believes it is not in the best interests of the Fund to do so. In this case,
such reverse repurchase agreements will be considered borrowings subject to the
asset coverage described above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments that: (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 objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
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Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
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 that, 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.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lesser percentages as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice and illiquid restricted securities are subject to the limitation on
illiquid securities. In addition, interests in privately arranged loans acquired
by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities which are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by the Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: With respect to the Money Market Funds, the term
"money market instruments" refers to instruments with remaining maturities
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of 397 days or less, or instruments subject to demand features or resets if the
remaining maturity is more than 397 days. Money market instruments include,
among other instruments, U.S. Treasury Obligations, U.S. Government Obligations,
bank instruments, commercial instruments, repurchase agreements and municipal
securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: 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.
Municipal Securities may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these quidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. 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.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the
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underlying security. The purpose of engaging in transactions involving puts is
to maintain flexibility and liquidity to permit the Fund to meet redemptions and
remain as fully invested as possible in municipal securities. The Funds will
limit their put transactions to institutions which the Adviser believes present
minimal credit risk, pursuant to guidelines adopted by the Boards. Nations Tax
Exempt Fund may invest more than 40% of its portfolio in puts or other
securities guaranteed by banks and other financial institutions. Accordingly,
changes in the credit quality of these institutions could cause losses to the
Fund and affect its share price.
Although each Fund does 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.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., GNMA certificates; in other cases interest and principal are not
guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law. The market value of U.S. Government
Obligations may fluctuate due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
Obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government Obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
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issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.)
An instrument with a demand period exceeding seven days may be considered
illiquid if there is no secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities take
place at a future date. Because actual payment for and delivery of such
securities generally takes place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. 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 and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
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 mod-
23
<PAGE>
est, 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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
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 two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below risk-
free U.S. Treasury short-term obligations." D-1 indicates very high certainty of
timely payment. Liquidity factors are excellent and supported by good
fundamental protection factors. Risk factors are considered to be minor. D-1-
indicates high certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
D-2 indicates good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization
24
<PAGE>
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest 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 very high.
AA -- The second highest category; indicates a superior 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.
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".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
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:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
25
<PAGE>
Prospectus
PRIMARY B SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund") of
Nations Fund Trust, Nations Fund, Inc. and Nations
Fund Portfolios, Inc. ("Nations Portfolios"), each
an open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations Fund
Family"). This Prospectus describes one class of
shares of each Fund -- Primary B Shares (formerly
called Trust B Shares).
This Prospectus sets forth concisely the information
about Nations Fund that a prospective purchaser of
Primary B Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust, Nations Fund, Inc. and Nations
Portfolios is contained in separate Statements of
Additional Information ("SAIs"), that have been
filed with the Securities and Exchange Commission
(the "SEC") and are available upon request without
charge by writing or calling Nations Fund at its
address or telephone number shown below. The SAIs
for Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc. ("NBAI")
is the investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to certain of the Funds and
Gartmore Global Partners ("Gartmore") is
sub-investment adviser to the other Funds. As used
herein the "Adviser" shall mean NBAI, TradeStreet
and/or Gartmore as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
EQUITY FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations International Equity Fund
Nations Emerging Markets Fund
Nations Pacific Growth Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Disciplined Equity Fund
Nations Equity Index Fund
BALANCED FUND:
Nations Balanced Assets Fund
BOND FUNDS:
Nations Short-Intermediate Government Fund
Nations Government Securities Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Global Government Income Fund
For Fund information call:
1-800-621-2192
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Objectives 7
How Objectives Are Pursued 8
How Performance Is Shown 19
How The Funds Are Managed 20
Organization And History 26
About Your
Investment
How To Buy Shares 27
Shareholder Administration Arrangements 28
How To Redeem Shares 29
How To Exchange Shares 29
How The Funds Value Their Shares 30
How Dividends And Distributions Are Made; Tax
Information 30
Appendix A -- Portfolio Securities 31
Appendix B -- Description Of Ratings 39
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) EQUITY FUNDS:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is to seek
current income and growth of capital by investing primarily
in companies with above average dividend yields.
(Bullet) Nations International Equity Fund's investment objective is
to seek long-term capital growth by investing primarily in
equity securities of non-United States companies in Europe,
Australia, the Far East and other areas, including some
developing countries.
(Bullet) Nations Emerging Markets Fund's investment objective is to
seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as
those in Latin America, Eastern Europe, the Pacific Basin,
the Far East, Africa and India.
(Bullet) Nations Pacific Growth Fund's investment objective is to seek
long-term capital growth by investing primarily in equity
securities of companies in the Pacific Basin and the Far East
(excluding Japan).
(Bullet) Nations Capital Growth Fund's investment objective is to
seek growth of capital by investing in companies that
are believed to have superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment objective is
to seek capital appreciation by investing in emerging
growth companies that are believed to have superior
long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective
is to seek growth of capital by investing in companies
that are expected to produce significant increases in
earnings per share.
(Bullet) Nations Equity Index Fund's investment objective is to
seek investment results that correspond, before fees
and expenses, to the total return of the Standard &
Poor's 500 Composite Stock Price Index.
(Bullet) BALANCED FUND:
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
(Bullet) BOND FUNDS:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with modest
fluctuation of principal. The Fund will invest primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment
objective is to seek current income by investing
primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective
is to seek current income consistent with minimal
fluctuation of principal. The Fund invests primarily
in short-term investment grade fixed income
securities.
3
<PAGE>
(Bullet) Nations Diversified Income Fund's investment objective
is to seek current income consistent with total return
by investing primarily in a diversified portfolio of
fixed income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment
objective is to seek total return by investing
primarily in investment grade fixed income securities.
The Fund may invest in long-term, intermediate-term
and short-term securities.
(Bullet) Nations Global Government Income Fund's investment
objective is to maximize total return by investing
primarily in high quality debt securities issued by
governments, banks and supranational entities located
throughout the world.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to certain
of the Funds and Gartmore Global Partners provides sub-advisory
services to the other Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Equity Funds and the Balanced Fund
declare and pay dividends from net investment income each calendar
quarter. The Bond Funds declare dividends daily and pay them monthly.
Each Fund's net realized capital gains, including net short-term
capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities, including U.S. Government
Obligations, are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. The value of a Fund's investments in
debt securities 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not not
be able to pay principal and/or interest when due. Certain of the
Funds' investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
Nations International Equity Fund, Nations Emerging Markets Fund,
Nations Pacific Growth Fund and Nations Global Government Income Fund
are designed for long-term investors seeking international
diversification and who are willing to bear the risks associated with
international investing, such as foreign currency fluctuations and
economic and political risks. For a discussion of these factors, see
"How Objectives Are Pursued -- Special Risk Considerations Relevant to
an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Primary B Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
NATIONS FUND EQUITY/BALANCED FUNDS PRIMARY B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Nations Inter- Nations Pacific Nations Emerging
Value Equity national Emerging Growth Capital Growth
Fund Income Fund Equity Fund Markets Fund Fund Growth Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases1 None None None None None None None
Deferred Sales Load None None None None None None None
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Disciplined Equity Nations
Equity Index Balanced
Fund Fund Assets Fund
<S> <C> <C> <C>
Sales Load Imposed on
Purchases1 None None None
Deferred Sales Load None None None
</TABLE>
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Nations Inter- Nations Pacific Nations Emerging
Value Equity national Emerging Growth Capital Growth
Fund Income Fund Equity Fund Markets Fund Fund Growth Fund Fund
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees
(After Fee Waivers) .75% .70% .90% 1.10% .90% .75% .75%
Other Expenses
(After Expense
Reimbursements) .71% .70% .52% 1.28% 1.11% .71% .74%
Total Operating Expenses
(After Fee Waivers
and Expense
Reimbursements) 1.46% 1.40% 1.42% 2.38% 2.01% 1.46% 1.49%
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Disciplined Equity Nations
Equity Index Balanced
Fund Fund Assets Fund
<S> <C> <C> <C>
Management Fees
(After Fee Waivers) .75% .10% .75%
Other Expenses
(After Expense
Reimbursements) .77% .75% .75%
Total Operating Expenses
(After Fee Waivers
and Expense
Reimbursements) 1.52% .85% 1.50%
</TABLE>
1 Primary B Shares are purchased at net asset value per share without the
imposition of a sales charge according to procedures established by the
Institution. Institutions, however, may charge the accounts of their customers
for services provided in connection with the purchase or redemption of shares.
NATIONS FUND BOND FUNDS PRIMARY B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Nations
Short-
Inter- Nations Nations Nations
mediate Government Short-Term Diversified
Government Securities Income Income
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases1 None None None None
Deferred Sales Load None None None None
</TABLE>
<TABLE>
<CAPTION>
Nations
Strategic Nations
Fixed Global
Income Government
Fund Income Fund
<S> <C> <C>
Sales Load Imposed on Purchases1 None None
Deferred Sales Load None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Short-
Inter- Nations Nations Nations
mediate Government Short-Term Diversified
Government Securities Income Income
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .40% .50% .30% .50%
Other Expenses (After Expense Reimbursements) .58% .80% .60% .77%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .98% 1.30% .90% 1.27%
</TABLE>
<TABLE>
<CAPTION>
Nations
Strategic Nations
Fixed Global
Income Government
Fund Income Fund
<S> <C> <C>
Management Fees (After Fee Waivers) .50% 0.70%
Other Expenses (After Expense Reimbursements) .72% .87%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) 1.22% 1.57%
</TABLE>
1 Primary B Shares are purchased at net asset value per share without the
imposition of a sales charge according to procedures established by the
Institution. Institutions, however, may charge the accounts of their customers
for services provided in connection with the purchase or redemption of shares.
5
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Primary B Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Equity International Emerging Pacific
Nations Value Fund Income Fund Equity Fund Markets Fund Growth Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 15 $ 14 $ 14 $ 24 $ 20
3 Years $ 46 $ 44 $ 45 $ 74 $ 63
</TABLE>
<TABLE>
<CAPTION>
Nations Nations Nations Government
Nations Disciplined Equity Index Nations Balanced Short- Intermediate Securities
Equity Fund Fund Assets Fund Government Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 15 $ 9 $ 15 $ 10 $ 13
3 Years $ 48 $ 27 $ 47 $ 31 $ 41
</TABLE>
<TABLE>
<CAPTION>
Nations Strategic Nations Global
Fixed Income Government Income
Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 12 $ 16
3 Years $ 39 $ 50
</TABLE>
<TABLE>
<CAPTION>
Nations
Capital Nations Emerging
Growth Fund Growth Fund
<S> <C> <C>
1 Year $ 15 $ 15
3 Years $ 46 $ 47
</TABLE>
<TABLE>
<CAPTION>
Nations
Short-Term Income Nations Diversified
Fund Income Fund
<S> <C> <C>
1 Year $ 9 $ 13
3 Years $ 29 $ 40
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Primary B Shares will bear either directly or indirectly. The "Other Expenses"
figures in the above tables are based on estimated amounts for each Fund's
current fiscal year and reflect anticipated fee waivers and reimbursements.
There is no assurance that any fee waivers and reimbursements will continue
beyond the current fiscal year. If fee waivers and/or reimbursements are
discontinued, the amounts contained in the "Examples" above may increase.
Long-term shareholders of the Funds could pay more in sales charges than the
economic equivalent of the maximum front-end sales charges applicable to mutual
funds sold by members of the National Association of Securities Dealers, Inc.
("NASD"). For more complete descriptions of the Funds' operating expenses, see
"How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Primary B Shares of the indicated
Fund would have been as follows: Nations Value Fund -- .75%, .81% and 1.56%,
respectively; Nations Equity Income Fund -- .70%, .80% and 1.50%, respectively;
Nations International Equity Fund -- .90%, .87% and 1.77%, respectively; Nations
Emerging Markets Fund -- 1.10%, 1.40% and 2.50%, respectively; Nations Pacific
Growth Fund -- 0.90%, 1.40% and 2.30%, respectively; Nations Capital Growth
Fund -- .75%, .81% and 1.56%, respectively; Nations Emerging Growth
Fund -- .75%, 84% and 1.59%, respectively; Nations Disciplined Equity
Fund -- .75%, .87% and 1.62%, respectively; Nations Equity Index Fund -- .50%,
.85% and 1.35%, respectively; Nations Balanced Assets Fund -- .75%, .85% and
1.60%, respectively; Nations Short-Intermediate Government Fund -- .60%, .83%
and 1.43%, respectively; Nations Government Securities Fund -- .64%, .90% and
1.54%, respectively; Nations Short-Term Income Fund -- .60%, .85% and 1.45%,
respectively; Nations Diversified Income Fund -- .60%, .87% and 1.47%,
respectively; Nations Strategic Fixed Income Fund -- .60%, .82% and 1.42%,
respectively; and Nations Global Government Income Fund -- 0.70%, 1.20% and
1.90%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
6
<PAGE>
Objectives
EQUITY FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS INTERNATIONAL EQUITY FUND: Nations International Equity Fund's
investment objective is to seek long-term capital growth by investing primarily
in equity securities of non-United States companies in Europe, Australia, the
Far East and other areas, including some developing countries.
NATIONS EMERGING MARKETS FUND: Nations Emerging Markets Fund's investment
objective is to seek long-term capital growth by investing primarily in equity
securities of companies in emerging markets countries such as those in Latin
America, Eastern Europe, the Pacific Basin, the Far East, Africa and India.
NATIONS PACIFIC GROWTH FUND: Nations Pacific Growth Fund's investment objective
is to seek long-term capital growth by investing primarily in equity securities
of companies in the Pacific Basin and the Far East (excluding Japan).
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
NATIONS EQUITY INDEX FUND: Nations Equity Index Fund's investment objective is
to seek investment results that correspond, before fees and expenses, to the
total return of the Standard & Poor's 500 Composite Stock Price Index (the "S&P
500 Index" or the "Index").1 The Fund is not managed according to traditional
methods of "active" investment management, which involve the buying and selling
of securities based upon economic, financial, and market analyses and investment
judgment. Instead, the Fund, utilizing a
1 "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
"passive" or "indexing" investment approach, attempts to duplicate the
performance of the S&P 500 Index.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing primarily in
investment grade fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
NATIONS GLOBAL GOVERNMENT INCOME FUND: Nations Global Government Income Fund's
investment objective is to maximize total return by investing primarily in high
quality debt securities issued by governments, banks and supranational entities
located throughout the world.
Although the Adviser will seek to achieve the investment objective of each Fund,
there is no assurance that it will be able to do so. No single Fund should be
considered, by itself, to provide a complete investment program for any
investor. The net asset value of the shares of the Funds will fluctuate based on
market conditions. Therefore, investors should not rely upon the Funds for
short-term financial needs, nor are the Funds meant to provide a vehicle for
participating in short-term swings in the stock market.
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How Objectives Are Pursued
EQUITY FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability, and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's
price-to-earnings relative to corresponding ratios of other stocks in the same
industry or economic sector. The Adviser believes that companies with lower
price-to-earnings ratios are more likely to provide better opportunities for
capital appreciation. This "value" approach generally produces a dividend yield
greater than the market average. The Adviser will attempt to temper risk by
broad diversification among economic sectors and industries. Through this
strategy, the Fund pursues above-average returns while seeking to avoid
above-average risks.
The Fund invests under normal market conditions at least 65% of its total assets
in common stocks. In addition to common stocks, the Fund also may invest in
preferred stocks, securities convertible into common stock, and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities ("U.S. Government
Obligations"), and investment grade securities of domestic companies.
Obligations with the lowest investment grade rating (E.G. rated "BBB" by
Standard & Poor's Corporation ("S&P") or "Baa" by Moody's Investors Service,
Inc. ("Moody's"), have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. Subsequent to its purchase by the 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.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile.
Second, diversifying equity holdings in a manner that includes every major
economic sector contributes to reduced volatility, without a commensurate
reduction in expected investment return. Finally, investing in dividend paying
stocks in all the economic sectors can provide greater income than the Standard
& Poor's 500 Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (I.E., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
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In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories (E.G., rated "BBB" by
S&P) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (E.G. rated "BB" by S&P), or if not rated,
are of equivalent investment quality as determined by the Adviser.
Non-investment-grade debt securities are sometimes referred to as "high yield
bonds" or "junk bonds." They tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest up to 20%
of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant.
NATIONS INTERNATIONAL EQUITY FUND: The Fund intends to diversify investments
broadly among countries and normally to invest in securities representing at
least three different countries. The Fund may invest in companies in the Far
East and Western Europe as well as Australia, Canada, and other areas (including
developing countries). Under unusual circumstances, however, the Fund may invest
substantially all of its assets in companies in one or two countries.
In seeking to achieve its objective, the Fund will invest at least 65% of its
assets in common stocks of established non-United States companies that the
Adviser believes have potential for growth of capital. The Fund also may invest
up to 35% of its assets in any other type of security including: convertible
securities; preferred stocks; bonds, notes and other debt securities (including
Eurodollar securities); and obligations of domestic or foreign governments and
their political subdivisions.
The Fund also may invest in American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), American Depository Shares ("ADSs"), bonds, notes,
other debt securities of foreign issuers, securities of foreign investment funds
or trusts and real estate investment trust securities. For additional
information concerning the Fund's investment practices, see "Appendix A."
The 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 forward
foreign exchange contracts; and U.S. and foreign exchange-traded financial
futures and options thereon. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted, private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
NATIONS EMERGING MARKETS FUND: In seeking to achieve its objective, the Fund
will invest under normal market conditions at least 65% of its total assets in
equity securities of companies in emerging markets.
The Fund considers countries with emerging markets to include the following: (i)
countries with an emerging stock market as defined by the International Finance
Corporation; (ii) countries with low- to middle-income economies according to
the International Bank For Reconstruction and Development (more commonly
referred to as the World Bank); and (iii) countries listed in World Bank
publications as developing. The Adviser seeks to identify and invest in those
emerging markets that have a relatively low gross national product per capita,
compared to the world's major economies, and which exhibit potential for rapid
economic growth. The Adviser believes that investment in equity securities of
emerging market issuers offers significant potential for long-term capital
appreciation.
Emerging markets include, but are not limited to: Argentina, Brazil, Chile,
China, Czech Republic, Colombia, Ecuador, Greece, Hong Kong, Indonesia, India,
Malaysia, Mexico, the Philippines, Poland, Portugal, Peru, Russia, Singapore,
South Africa, Thailand, Taiwan and Turkey.
A company will be considered in a country, market or region if it conducts its
principal business activities in the country, market or region. A company will
be considered to conduct its principal business activities in a country, market
or region if it derives a significant portion (at least 50%) of its revenues or
profits from goods produced or sold, investments made, or services performed in
such country, market or region or has at least 50% of its assets situated in
such country, market or region.
9
<PAGE>
Equity securities of emerging market issuers may include common stocks,
preferred stocks (including convertible preferred stocks) and warrants; bonds,
notes and debentures convertible into common or preferred stock; equity
interests in foreign investment funds or trusts and real estate investment trust
securities. The Fund may invest in ADRs, Global Depositary Receipts ("GDRs"),
EDRs, and ADSs of such issuers.
The Fund also may invest in other types of instruments, including debt
obligations. Debt obligations acquired by the Fund will be rated investment
grade at the time of purchase by Moody's or S&P or, if unrated, determined by
the Adviser to be comparable in quality to instruments so rated. Obligations
with the lowest investment grade rating (E.G., rated "Baa" by Moody's or "BBB"
by S&P) have speculative characteristics, and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. When allocating investments among individual countries, the
Adviser will consider various criteria, such as the relative economic growth
potential of the various economies and securities markets, expected levels of
inflation, government policies influencing business conditions and the outlook
for currency relationships.
The Fund also may invest in certain specified derivative securities, including:
exchage-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls and forward foreign exchange
contracts; 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. The Fund may lend its portfolio securities to
qualified institutional investors. The Fund may invest in restricted private
placement and other illiquid securities, and also may invest in securities
issued by other investment companies, consistent with the Fund's investment
objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS PACIFIC GROWTH FUND: The Fund seeks to achieve its objective by
investing primarily in securities of issuers in the regions known as the Pacific
Basin and the Far East. An issuer will be considered in a region if it conducts
its principal business activities in the region. An issuer will be considered to
conduct its principal business activities in a region if it derives a
significant portion (at least 50%) of its revenues or profits from goods
produced or sold, investments made, or services performed in such region or has
at least 50% of its assets situated in such region. The Pacific Basin and Far
East include Australia, Hong Kong, India, Indonesia, South Korea, Malaysia, New
Zealand, Pakistan, the People's Republic of China, the Philippines, Singapore,
Sri Lanka, Taiwan and Thailand and may include other markets that develop in the
region. The Fund will not invest in securities of issuers in Japan.
The Fund will focus on equity securities, but may also invest in debt
obligations. Such equity securities may include common stocks, preferred stocks
(including convertible preferred stocks) and warrants; bonds, notes and
debentures convertible into common or preferred stock; equity interests in
foreign investment funds or trusts and real estate investment trust securities.
Debt obligations acquired by the Fund will be rated investment grade at the time
of purchase by Moody's or S&P or, if unrated, determined by the Adviser to be
comparable in quality to instruments so rated. Obligations with the lowest
investment grade rating (E.G., rated "Baa" by Moody's or "BBB" by S&P) have
speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations.
In seeking to achieve its objective, the Fund will invest under normal market
conditions at least 65% of its total assets in securities of issuers that
conduct their principal business activities in countries of the Pacific Basin
and Far East, except for Japan. Although the Fund may not invest in securities
issued by companies that conduct their principal business activities in Japan,
the Fund may invest in securities that are listed on a Japanese exchange.
The Fund is a diversified fund that intends, under normal market conditions, to
invest in at least three different countries, although it may, from time to
time, invest all of its assets in a single country. If the Fund invests all or a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund,
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Nations Pacific Growth Fund and Nations Global Government Income Fund," below.
When allocating investments among individual countries, the Adviser will
consider various criteria, such as the relative economic growth potential of the
various economies and securities markets, expected levels of inflation,
government policies influencing business conditions and the outlook for currency
relationships. The Fund may invest in ADRs, GDRs, EDRs, and ADSs.
The 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 and forward foreign exchange
contracts; and U.S. and foreign exchange-traded financial futures approved by
the CFTC and options thereon for market exposure risk management. The Fund may
lend its portfolio securities to qualified institutional investors. The Fund may
invest in restricted, private placement and other illiquid securities, and also
may invest in securities issued by other investment companies, consistent with
the Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund.
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above average return on equity relative to the S&P 500 Index.
In addition, the Fund's investment program enables it to invest in the following
types of companies:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Through intensive research, visits to many companies each year, and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund
11
<PAGE>
also may invest in various money market instruments. The Fund may invest without
limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant. For additional information concerning these instruments and the Fund's
investment practices, see "Appendix A."
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its assets in foreign securities.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Fund seeks to provide investors with long-term
capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price-to-earnings ratios. The Fund also may invest
in securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by an NRSRO or, if not rated, are of
equivalent quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes, if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments and
money market instruments.
NATIONS EQUITY INDEX FUND: Under normal conditions, the Fund will invest at
least 80% of its assets in equity securities of companies which compose the S&P
500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and its
current price. In seeking to duplicate the performance of the S&P 500 Index, the
Adviser will attempt to allocate the Fund's portfolio among common stock in
approximately the same weightings as the S&P 500 Index, beginning with the
heaviest weighted stocks that make up a larger portion of the Index's value.
The Adviser generally will seek to match the composition of the S&P 500 Index as
closely as possible, but may not always invest the Fund's portfolio to mirror
the Index exactly. Because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 Index stocks and may at times have its portfolio
weighted differently from the S&P 500 Index. The Fund may omit or remove an S&P
500 Index stock from its portfolio if, following objective criteria, the Adviser
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. The Adviser may purchase stocks that are not included in the S&P 500
Index to compensate for these differences if it believes that their prices will
move together with the prices of S&P 500 Index stocks omitted from the
portfolio.
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The correlation between the performance of Nations Equity Index Fund and the S&P
500 Index is expected to be over 0.95 on an annual basis. A correlation of 1.00
would indicate perfect correlation, which would be achieved when the net asset
value of the Fund, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
500 Index. The Fund's ability to track the S&P 500 Index, however, may be
affected by, among other things, transaction costs, changes in either the
composition of the S&P 500 Index or the number of shares outstanding for the
components of the S&P 500 Index, and the timing and amount of shareholder
purchase and redemptions. The Fund may utilize stock index futures contracts to
minimize tracking error. In connection with engaging in futures transactions,
the Fund may hold cash, cash equivalents, and/or U.S. government securities.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical in common stocks. However, the Fund will maintain
a reasonable position in high-quality short-term debt securities and money
market instruments to meet redemption requests. If the Adviser believes that
market conditions warrant a temporary defensive posture, the Fund may invest
without limitation in high-quality short-term debt securities and money market
instruments. These securities and money market instruments may include domestic
and foreign commercial paper, certificates of deposit, bankers' acceptances and
time deposits, U.S. government securities and repurchase agreements.
The Fund may also invest a portion of its portfolio in instruments whose return
depends on stock market prices. These may include debt securities whose prices
or interest rates are indexed to the return of the S&P 500 Index, or swap
agreements linked to the S&P 500 Index, and options and futures contracts. The
Fund would invest in these types of instruments in order to seek to match the
total return of the Index in accordance with its investment objective. However,
instruments linked to stock market returns may not track the return of the Index
in all cases, and may involve additional credit risks. For additional
information concerning the Fund's investment practices, see "Appendix A."
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis. The inclusion of a stock in the S&P 500
Index in no way implies that S&P believes the stock to be an attractive
investment. The Index is determined, composed and calculated by S&P without
regard to the Fund. S&P is neither a sponsor of, nor in any way affiliated with
the Fund, and S&P makes no representation or warranty, expressed or implied, on
the advisability of investing in the Fund or as to the ability of the Index to
track general stock market performance. S&P disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Index or any data included therein.
GENERAL: Each Equity Fund 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 Equity Fund
may lend its portfolio securities to qualified institutional investors. Each
Equity Fund (except the Nations Equity Index Fund) also may invest in
restricted, private placement and other illiquid securities, real estate
investment trust securities and securities issued by other investment companies,
consistent with the Fund's investment objective and policies.
BALANCED FUND:
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset classes in which the Fund
principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under the normal circumstances, at least 25% of the total value of the Fund's
assets will be invested in fixed income securities. The Fund may invest in
government, corporate and municipal securities, as well as mortgage-backed
securities. Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA") or
Thomson BankWatch,
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Inc. ("BankWatch"), or, if unrated, determined by the Adviser to be comparable
in quality to instruments so rated. S&P, Moody's, D&P, Fitch, IBCA and BankWatch
are the six nationally recognized statistical rating organizations
(collectively, "NRSROs"). Obligations with the lowest investment grade rating
(E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. See "Appendix B" for a description of
these ratings designations. Subsequent to its purchase by the 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.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
The Fund also may invest in certain specified derivative securities, including:
interest rate swaps, caps and floors for hedging purposes; exchange-traded
options; over-the-counter options executed with primary dealers, including long
calls and puts and covered calls to enhance return; and CFTC-approved U.S. and
foreign exchange-traded financial futures and options thereon for market
exposure risk management. The Fund may lend its portfolio securities to
qualified institutional investors and engage in dollar roll transactions. The
Fund may invest in real estate investment trust securities. The Fund also may
invest in restricted, private placement and other illiquid securities, and may
purchase securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
BOND FUNDS:
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will not exceed seven years
and the duration will not exceed five years. Some U.S. Government Obligations
are backed by the full faith and credit of the U.S. Treasury, such as direct
pass-through certificates of the Government National Mortgage Association
("GNMA"). Some are supported by the right of the issuer to borrow from the U.S.
Government, such as obligations of Federal Home Loan Banks, and some are backed
only by the credit of the issuer itself, such as obligations of the Federal
National Mortgage Association ("FNMA"). U.S. Government Obligations also include
U.S. Treasury Obligations, which differ only in their interest rates, maturities
and times of issuance. U.S. Government Obligations have historically involved
little risk of loss of principal if held to maturity. However, due to
fluctuations in interest rates, the market value of such securities may vary
during the period a shareholder owns shares of the Fund. The value of the Fund's
portfolio generally will vary inversely with changes in prevailing interest
rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six 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-backed securities of governmental issuers, or of private
issuers, including mortgage pass-through certificates, collateralized mortgage
obligations or "CMOs," real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years and the Fund's duration is expected to be in a range of 3.5 to 6 years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six 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-backed securities of governmental issuers, or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six 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 (I.E., those
within the two highest rating
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categories or unrated instruments deemed by the Adviser to be of comparable
quality), repurchase agreements and cash. Such obligations may include those
issued by foreign banks and foreign branches of U.S. banks. These investments
may be in such proportion as, in the Adviser's opinion, existing circumstances
warrant.
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity and duration of the Fund's portfolio will not exceed three
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the six 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; and
mortgage-related securities of governmental issuers, or of private issuers,
including mortgage pass-through certificates, CMOs, real estate investment trust
securities or mortgage-backed bonds; other asset-backed and municipal securities
rated by one of the six NRSROs, or, if not so rated, determined by the Adviser
to be of comparable quality to instruments so rated.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. 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. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic conditions warrant.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity of the Fund's portfolio will be greater than five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed- and variable-rate bonds; obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities; dollar-
denominated and non-dollar-denominated debt obligations of foreign issuers,
including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers, or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSRO's, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds." They tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities.
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. See "Appendix B" below
for a description of these rating designations.
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<PAGE>
The Fund may hold or invest in "high quality" money market instruments (I.E.,
those within the two highest rating categories or unrated instruments deemed by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade debt obligations. It is expected that
the average weighted maturity of the Fund's portfolio will be ten years or less
and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; U.S. Government
Obligations; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments; mortgage-backed securities of
governmental issuers, or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund also may invest in dividend paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities. As noted above, the Fund will invest
in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. 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. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS GLOBAL GOVERNMENT INCOME FUND: In seeking to achieve its investment
objective, the Fund will invest under normal market conditions at least 65% of
its total assets in debt securities issued or guaranteed by U.S. or foreign
governments (including states, provinces and municipalities) or their agencies,
instrumentalities or subdivisions ("Government Securities"). Except for
temporary defensive purposes, the Fund will concentrate its investments in
foreign Government Securities. Concentration in this context means the
investment of more than 25% of the Fund's total assets in such securities. The
Fund may invest in the debt securities of any type of issuer, including
corporations, banks and supranational entities.
The Fund, under normal market conditions, will invest in at least three
different countries. These countries may include the U.S., the countries of
Western Europe, Japan, Australia, New Zealand and Canada. If the Fund invests a
significant portion of its assets at any time in a single country, events
occurring in such country are more likely to affect the Fund's investments. For
additional information concerning risk, see "Special Risk Considerations
Relevant to an Investment in Nations International Equity Fund, Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund," below. Because the Fund intends to invest a large portion of its assets
in foreign Government Securities, the Fund is a "non-diversified" investment
company for purposes of the Investment Company Act of 1940 (the "1940 Act"). The
Fund may invest in securities of issuers located in any region or country and
that are denominated in any currency.
The Fund is managed in accordance with an overall global investment strategy
which means that Fund investments are allocated among securities denominated in
U.S. dollars and the currencies of a number of foreign countries. The Fund's
exposure to various countries and currencies will vary in accordance with the
Adviser's assessment of the relative yield and appreciation of such securities.
Fundamental economic strength, credit quality and interest rate trends are the
principal factors considered by the Adviser in determining whether to increase
or decrease the emphasis placed upon a particular country or particular type of
security within the Fund's investment portfolio.
Under normal market conditions, the Fund intends to invest primarily in
securities rated "A" or better at the time of purchase by Moody's or S&P and
unrated securities that, at the time of purchase will be determined to be of
comparable quality by the Adviser. The Fund also may invest in securities rated
"Baa" by Moody's or "BBB" by S&P, but does not, as a general matter, intend to
invest more than 10% of its total assets in such securi-
16
<PAGE>
ties. 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 event in determining
whether the Fund should continue to hold the obligation. In no event will the
Fund hold more than 5% of its total net assets in securities rated below
investment grade. See "Appendix B" below for a description of these rating
designations. The Adviser expects that the Fund's dollar-weighted average
maturity will not be greater than 15 years under normal market conditions.
Supranational entities are international organizations jointly operated by
multiple sovereign governments including, for example, the World Bank, the
European Coal and Steel Community, the Asian Development Bank, the European
Investment Bank and the Inter-American Development Bank. Supranational entities
generally have no taxing authority and are dependent upon their members for the
funds necessary to pay principal and interest on their debt obligations.
The Fund also may invest in money market instruments, forward foreign currency
exchange contracts, futures and options and other instruments. The Fund also may
invest in securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
For defensive purposes, the Fund may temporarily invest substantially all of its
assets in U.S. financial markets or in U.S. dollar-denominated instruments. See
"Appendix A" below for additional information concerning the investment
practices of the Fund. For more information concerning these and other
instruments in which the Funds may invest and their investment practices, see
"Appendix A."
GENERAL: Each of the 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 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. Each of the Funds also may
lend its portfolio securities to qualified institutional investors and may
invest in restricted, private placement and other illiquid securities. Each of
the Funds may engage in reverse repurchase agreements and dollar roll
transactions. The Nations Global Government Income Fund may invest in money
market instruments, forward foreign currency exchange contracts, futures and
options and other instruments. Additionally, each Bond Fund may purchase
securities issued by other investment companies, consistent with the Fund's
investment objective and policies. Certain securities that have variable or
floating interest rates or demand, put or prepayment features may be deemed to
have remaining maturities shorter than their nominal maturities for purposes of
determining the average weighted maturity and duration of the Funds.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A."
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
SPECIAL RISK CONSIDERATIONS RELEVANT TO AN INVESTMENT IN NATIONS INTERNATIONAL
EQUITY FUND, NATIONS EMERGING MARKETS FUND, NATIONS PACIFIC GROWTH FUND AND
NATIONS GLOBAL GOVERNMENT INCOME FUND: Investors should understand and consider
carefully the special risks involved in foreign investing. In addition, each of
these Funds presents unique risks that investors should be aware of.
Investors in Nations International Equity Fund should be aware that the Fund
may, from time to time, invest up to 5% of it's total assets in securities of
companies located in Eastern Europe. Economic and political reforms in this
region are still in their infancy. As a result, investment in such countries
would be highly speculative and could result in losses to the Fund and, thus, to
its shareholders.
Investors in Nations Pacific Growth Fund should understand and consider
carefully the special risks involved in investing in the Pacific Basin and Far
East. Countries in the Pacific Basin and Far East are in various stages of
economic development, ranging from emerging markets to mature economies, but
each has unique risks. Most countries in this region are heavily dependent on
international trade, and some are especially vulnerable to recessions in other
countries. Many of these countries are also sensitive to world commodity prices.
Some countries that have experienced rapid growth may still have obsolete
financial systems, economic problems or archaic legal systems. In addition, many
of these nations are experiencing political and social uncertainties.
The same is true, but even more so, for the emerging market countries in which
the Nations Emerging Markets Fund will invest. Although the Fund believes that
its investments present the possibility for significant growth over the long
term, they also entail significant risks. Many investments in emerging markets
can be considered speculative, and their prices can be much
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<PAGE>
more volatile than in the more developed nations of the world. This difference
reflects the greater uncertainties of investing in less established markets and
economies. The financial markets of emerging markets countries are generally
less well capitalized and thus securities of issuers based in such countries may
be less liquid.
Nations Global Government Income Fund's yield and share price will change based
on changes in domestic or foreign interest rates and in an issuer's
creditworthiness. In general, bond prices rise when interest rates fall, and
vice versa.
Moreover, for each of the Funds, investing in securities denominated in foreign
currencies and utilization of forward foreign currency exchange contracts and
other currency hedging techniques involve certain considerations comprising both
opportunities and risks not typically associated with investing in U.S.
dollar-denominated securities. Additionally, changes in the value of foreign
currencies can significantly affect a Fund's share price. General economic and
political factors in the various world markets also can impact a Fund's share
price.
The expenses to individual investors of investing directly in foreign securities
are very high relative to similar costs for investing in U.S. securities. While
the Funds offer a more efficient way for individual investors to participate in
foreign markets, their expenses, including custodial fees, are also higher than
the typical domestic equity mutual fund.
Risks unique to international investing include: (1) restrictions on foreign
investment and repatriation of capital; (2) fluctuations in currency exchange
rates; (3) costs of converting foreign currency into U.S. dollars and U.S.
dollars into foreign currencies; (4) greater price volatility and less
liquidity; (5) settlement practices, including delays, which may differ from
those customary in United States markets; (6) exposure to political and economic
risks, including the risk of nationalization, expropriation of assets and war;
(7) possible imposition of foreign taxes and exchange control and currency
restrictions; (8) lack of uniform accounting, auditing and financial reporting
standards; (9) less governmental supervision of securities markets, brokers and
issuers of securities; (10) less financial information available to investors;
and (11) difficulty in enforcing legal rights outside the United States. These
risks often are heightened for investments in emerging or developing countries.
See "Appendix A" for an additional discussion of the risks associated with an
investment in the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund.
PORTFOLIO TURNOVER: Generally, the Equity Funds, the Balanced Fund and the Bond
Funds will purchase portfolio securities for capital appreciation or investment
income, or both, and not for short-term trading profits. While it is not
possible to predict exactly annual portfolio turnover rates, it is expected that
under normal market conditions, annual portfolio turnover rates will not exceed
75% for Nations Emerging Markets Fund and Nations Pacific Growth Fund and 175%
for Nations Global Government Income Fund. The portfolio turnover rates of the
indicated Funds for the fiscal years ended November 30, 1995, 1994 and 1993 were
as follows: Nations Value Fund -- 63%, 75% and 64%, respectively; Nations
Capital Growth Fund -- 80%, 56% and 81%, respectively; Nations Balanced Assets
Fund -- 174%, 156% and 50%, respectively; Nations Short-Intermediate Government
Fund -- 328%, 133% and 92%, respectively; Nations Short-Term Income
Fund -- 224%, 293% and 121%, respectively; Nations Diversified Income
Fund -- 96%, 144% and 86%, respectively; and Nations Strategic Fixed Income
Fund -- 228%, 307% and 161%, respectively. The portfolio turnover rates for
Nations Disciplined Equity Fund for the periods ended November 30, 1995 and 1994
were 124% and 177%, respectively. The portfolio turnover rates for Nations
Emerging Growth Fund for the fiscal year ended November 30, 1995, 1994 and the
period from commencement of operations to November 30, 1993 were 139%, 129% and
159%, respectively. The portfolio turnover rate for Nations Equity Index Fund
for the fiscal year ended November 30, 1995 and for the period from commencement
of operations to November 30, 1994 was 18% and 14%, respectively. The portfolio
turnover rates for the indicated Funds for the fiscal years ended May 31, 1995
and 1994 were as follows: Nations Equity Income Fund -- 158% and 116%,
respectively; Nations International Equity Fund -- 92% and 39%, respectively;
and Nations Government Securities Fund -- 413% and 56%, respectively. If a
Fund's portfolio turnover exceeds 100%, it may result in higher brokerage costs
and possible tax consequences for the Fund and its shareholders.
RISK CONSIDERATIONS: Although the Adviser of Nations International Equity Fund,
Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global
Government Income Fund will seek to achieve the investment objective of each
Fund, there is no assurance that it will be able to do so. No single Fund should
be considered, by itself, to provide a complete investment program for any
investor. Investments in a Fund are not insured against loss of principal.
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 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
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<PAGE>
backed by the United States Government are subject to credit risk, I.E., that
the issuer may not be able to pay principal and/or interest when due.
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 the 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply (a) with respect to
the Nations Global Government Income Fund, to investments in foreign Government
Securities; and (b) to investments in obligations issued or guaranteed by the
U.S. Government or its agencies and instrumentalities. In addition, this
limitation does not apply to investments by "money market funds" as that term is
used under the Investment Company Act of 1940, as amended (the "1940 Act") in
obligations of domestic banks.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund (other than Nations Global Government Income Fund) may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
Nations Global Government Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of such Fund's total
assets would be invested in the securities of one issuer, and with respect to
50% of such Fund's total assets, more than 5% of its assets would be invested in
the securities of one issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares of a Fund may be calculated on an average annual total return basis or an
aggregate total return basis. Average annual total return refers to the average
annual compounded rates of return over one-, five-, and ten-year periods or the
life of the Fund (as stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment, assuming the reinvestment of all dividend and capital
gains distributions. Aggregate total return reflects the total percentage change
in the value of the investment over the measuring period again assuming the
reinvestment of all dividends and capital gains distributions. Total return may
also be presented for other periods.
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<PAGE>
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and such Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary B Shares, the Money Market Funds offer Primary A,
Investor A, Investor B, Investor C and Investor D Shares. In addition to Primary
B Shares, the Non-Money Market Funds offer Primary A, Investor A, Investor C and
Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. Any fees charged by an institution and/or servicing agent directly to
its customers' accounts in connection with investments in the Funds will not be
included in calculations of total return or yield. Each Fund's annual report
contains additional performance information and is available upon request
without charge from the Funds' distributor or an Investor's Institution, as
defined below.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust, Nations Fund, Inc. and
Nations Portfolios are managed under the direction of its Board of Trustees and
Board of Directors, respectively. Nations Fund Trust's SAI contains the names of
and general background information concerning each Trustee of Nations Fund
Trust. Nations Fund, Inc. and Nations Portfolio's SAIs contain the names of and
general background information concerning each Director of Nations Fund, Inc.
and Nations Portfolios, respectively.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NationsBank has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Nations Gartmore serves as sub-investment adviser. TradeStreet is a wholly owned
subsidiary of NationsBank. TradeStreet provides investment management services
to individuals, corporations and institutions.
Gartmore with principal offices at One NationsBank Plaza, Charlotte, North
Carolina 28255, serves as sub-investment adviser to Nations International Equity
Fund, Nations Emerging Markets Fund, Nations Pacific Growth Fund and Nations
Global Government Income Fund pursuant to sub-advisory agreements. Gartmore is a
joint venture structured as a general partnership between NB Partner Corp., a
wholly owned subsidiary of NationsBank, and Gartmore U.S. Limited, an indirect,
wholly owned subsidiary of Gartmore Investment Management plc ("Gartmore plc"),
a UK company, which is the holding company for a leading UK-based international
fund management group of companies. National Westminster Bank plc and affiliated
entities (collectively, "Natwest") own 100% of the equity of Gartmore Investment
Management plc.
Through April 10, 1996, sub-advisory services were provided to NBAI and the
Funds by Nations Gartmore Investment Management ("Nations Gartmore", the
predecessor to Gartmore), pursuant to sub-advisory agreements among NBAI,
Nations Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively, on
behalf of the Funds. Nations Gartmore was a joint venture structured as a
general partnership between NB Partner Corp., and Gartmore U.S. Limited. On
April 10, 1996, NatWest acquired a controlling interest in Gartmore plc from
Compagnie de Suez and affiliated entities ("Compagnie de Suez") through a direct
purchase from Compagnie de Suez of its indirect subsidiary Indosuez UK Asset
Management Limited, which held 75% of Gartmore plc's outstanding voting
securities (the "Acquisition"). NatWest acquired the remaining portion
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of Gartmore plc's shares held by public shareholders through a tender offer.
Gartmore is the successor entity resulting from the Acquisition and change of
control of Nations Gartmore.
On July 17, 1996, the shareholders of the Funds approved the new sub-advisory
arrangement with Gartmore and Sub-Advisory Agreements dated April 10, 1996 among
NBAI, Gartmore and Nations Fund, Inc. and Nations Portfolios, respectively.
There were no material changes in the personnel who provide services under the
new Sub-Advisory Agreements, and the Funds receive the same sub-advisory
services, provided in the same manner and at the same fee levels, as they
received under the Previous Sub-Advisory Agreements.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc. and Nations Portfolios' Boards of Directors, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. With
respect to the Non-Money Market Funds, the Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.50% of the average daily net assets
of Nations Equity Index Fund; 0.60% of the average daily net assets of each of
Nations Short-Intermediate Government Fund, Nations Short-Term Income Fund,
Nations Diversified Income Fund and Nations Strategic Fixed Income Fund; 0.75%
of the average daily net assets of each of Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund and
Nations Balanced Assets Fund; 0.65% of the first $100 million of Nations
Government Securities Fund's average daily net assets, plus 0.55% of the Fund's
average daily net assets in excess of $100 million and up to $250 million, plus
0.50% of the Fund's average daily net assets in excess of $250 million; 0.75% of
the first $100 million of Nations Equity Income Fund's average daily net assets,
plus 0.70% of the Fund's average daily net assets in excess of $100 million and
up to $250 million, plus 0.60% of the Fund's average daily net assets in excess
of $250 million; 0.90% of the average daily net assets of Nations International
Equity Fund; 1.10% of the average daily net assets of Nations Emerging Markets
Fund; 0.90% of the average daily net assets of Nations Pacific Growth Fund; and
0.70% of the average daily net assets of Nations Global Government Income Fund.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay to TradeStreet sub-advisory fees, computed daily and
paid monthly, at the annual rates of: 0.10% of the average daily net asset of
Nations Equity Index Fund; 0.15% of the average daily net assets of each of
Nations Short-Intermediate Government Fund, Nations Government Securities Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund and Nations
Strategic Fixed Income Fund; 0.20% of the average daily net assets of each of
Nations Equity Income Fund; and 0.25% of the average daily net assets of each of
Nations Value Fund, Nations Capital Growth Fund, Nations Emerging Growth Fund,
Nations Disciplined Equity Fund and Nations Balanced Assets Fund.
For services provided and expenses assumed pursuant to sub-advisory agreements,
NBAI will pay Gartmore sub-advisory fees, computed daily and paid monthly, at
the annual rates of: 0.70% of Nations International Equity Fund's average daily
net assets; 0.85% of Nations Emerging Markets Fund's average daily net assets;
0.70% of Nations Pacific Growth Fund's average daily net assets; and 0.54% of
Nations Global Government Income Fund's average daily net assets. For the fiscal
year ended May 31, 1994, Nations International Equity Fund paid its prior
sub-adviser fees at the rate of 0.41% of the Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet and/or Nations Gartmore) may waive
or reimburse (either voluntarily or pursuant to applicable state limitations)
advisory or sub-advisory fees and/or expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
Nations Equity Index Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%;
Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term Income
Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations Strategic
Fixed Income Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid
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NationsBank under a prior Investment Advisory Agreement advisory fees at the
indicated rates of the following Funds' average daily net assets: Nations Equity
Income Fund -- 0.67%; Nations International Equity Fund -- 0.22%; and Nations
Government Securities Fund -- 0.48%.
For the fiscal period from June 30, 1995 to December 31, 1995, after waivers,
Nations Portfolios paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth Fund --
0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Fund's average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
Nations Equity Index Fund -- 0.09%; Nations Balanced Assets Fund -- 0.75%;
Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term Income
Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations Strategic
Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Equity Income Fund -- 0.67%; Nations International Equity
Fund -- 0.22%; and Nations Government Securities Fund -- 0.48%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Portfolios paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Emerging Markets Fund -- 0.25%; Nations Pacific Growth
Fund -- 0.20%; and Nations Global Government Income Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations Emerging
Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations Equity
Index Fund -- 0.10%; Nations Balanced Assets Fund -- 0.25%; Nations
Short-Intermediate Government Fund -- 0.15%; Nations Short-Term Income
Fund -- 0.15%; Nations Diversified Income Fund -- 0.15%; Nations Strategic Fixed
Income Fund -- 0.15%; Nations Equity Income Fund -- 0.20%; and Nations
Government Securities Fund -- 0.15%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers, NBAI
paid Gartmore or its predecessors sub-advisory fees at the rate of 0.67% of the
average daily net assets of Nations International Equity Fund. For the fiscal
period from January 1, 1996 to March 31, 1996, after waivers, NBAI paid Gartmore
or its predecessors sub-advisory fees at the indicated rates of the following
Funds' average daily net assets; Nations Emerging Markets Fund -- 0.85%; Nations
Pacific Growth Fund -- 0.70%; and Nations Global Government Income
Fund -- 0.54%.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been the
Portfolio Manager for Nations Value Fund since 1989. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Herrmann has worked for
the Investment Management Group at NationsBank since 1981 where her
responsibilities included fund management and institutional portfolio
management. She attended Virginia Wesleyan College. Ms. Herrmann holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the investment Management Group at NationsBank.
He has worked in the investment community since 1980. His past experience
includes fund analysis and portfolio management for National Bank of Detroit.
Mr. Williams received a B.S. in Accounting from East Carolina University, Summa
Cum Laude and an M.B.A. from Indiana University. He holds the Chartered
Financial Analyst designation, is on the Advisory Board of Indiana University's
Investment Management Academy, and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Stephen Watson has been Principal Portfolio Manager of the Nations International
Equity Fund since February, 1995. He has been Portfolio Manager for Nations
International Equity Fund since 1995. He joined the Gartmore Group as a Global
Fund Manager in August 1993 and was recently appointed Head of the International
and Global Team. Prior to that, Mr. Watson was employed by James Capel Fund
Managers where he acted as a Director, Global Fund Manager and Client Services
Manager for various international clients. From 1980 to 1987 he was associated
with Capel-Cure Myers in their portfolio Management Division and prior to that
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he was with the investment division at Samuel Montagu. Mr. Watson is currently a
member of the Securities Institute.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the financial investment community since 1981. His
past experience includes portfolio management, equity research and financial
analysis for the Investment Management Group at NationsBank and Duke Power
Company. Mr. Sanders received a B.A. in Economics from the University of
Michigan and an M.B.A. from University of North Carolina at Charlotte. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been the Portfolio Manager for Nations Emerging
Growth Fund since 1992. Prior to assuming his position with TradeStreet, he was
Senior Vice President and Senior Portfolio Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1968. His
past experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager of the Nations Disciplined Equity Fund
since 1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's College and an M.B.A. from Kent State University. She
holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Security Analysts, Inc. She is also a member of the National
Association for Petroleum Investment Analysts and the World Affairs Council of
Washington, D.C.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
David M. Hetherington, CFA, is a Director of TradeStreet and Managing Director
of Fixed Income Management. Mr. Hetherington is responsible for overseeing all
fixed income product management and is Senior Portfolio Manager for Nations
Short-Term Income Fund. Mr. Hetherington has been Portfolio Manager for Nations
Short-Term Income Fund since 1995. Prior to assuming his position with
TradeStreet, he was Senior Vice President and Director of Fixed Income for the
Investment Management Group at NationsBank. Mr. Hetherington has worked in the
investment community since 1975. His past experience includes working as a
portfolio manager, a trust investment officer and a securities analyst for First
Citizens Bank and Deposit Guarantee as well as working as an Economist for the
U.S. Department of Labor in the Bureau of Labor Statistics. Mr. Hetherington
received a B.A. in Economics from Duke University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and the Senior Portfolio
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Manager for Nations Diversified Income Fund. Mr. Ahnrud has been Portfolio
Manager for Nations Diversified Income Fund since 1992. Prior to assuming his
position with TradeStreet, he was Senior Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. Mr. Ahnrud has
worked for the Investment Management Group at NationsBank since 1985 where his
responsibilities initially included institutional investment management sales
and later involved high yield credit analysis. Mr. Ahnrud received a dual B.S.
in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Mark Rimmer is Principal Portfolio Manager for Nations Global Government Income
Fund and has been an International Fixed Income Manager with the Gartmore Group
since 1990. He has been Portfolio Manager of Nations Global Government Income
Fund since 1995. He joined Gulf International Bank in 1986 on the trading desk,
and subsequently joined their Investment Management Group in 1988, managing
multi-currency funds for institutional clients in the Gulf region. Prior to that
he was associated with Sumitomo Finance International as a senior trader. Mr.
Rimmer graduated from Cambridge University in 1984 with an honors degree in
Economics. Mr. Rimmer also is a member of the Institute of Investment Management
and Research.
Philip Ehrmann is Principal Portfolio Manager for Nations Emerging Markets Fund
and is the head of the Gartmore Emerging Markets Team. He has been Portfolio
Manager for Nations Emerging Markets Fund since the Fund's inception. Prior to
joining Gartmore, Mr. Ehrmann was the Director of Emerging Markets for Invesco
in London. Mr. Ehrmann has over 15 years of investment management experience.
Seok Teoh is Principal Portfolio Manager for Nations Pacific Growth Fund. She
has been Portfolio Manager for Nations Pacific Growth Fund since the Fund's
inception. She has been associated with the Gartmore Group since 1990 as the
London based manager on its Far East desk. Prior to that Ms. Teoh worked for
Overseas Union Bank Securities in Singapore where she was responsible for
Singaporean and Malaysian equity sales and then subsequently for Rothschild as a
Fund Manager in Singapore and later in Tokyo. Ms. Teoh, who is a native of
Singapore, is fluent in Mandarin and Cantonese and received an Economics degree
from the University of Durham in 1985.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements, 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 federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of the Funds, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Funds.
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For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the rate of 0.10% of the
following Funds' average daily net assets: Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund,
Nations Equity Index Fund, Nations Balanced Assets Fund, Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund and Nations Strategic Fixed Income Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the following Funds' average daily net assets: Nations Equity Income Fund,
Nations International Equity Fund and Nations Government Securities Fund.
For the fiscal period from June 30, 1995 to March 31, 1996, after waivers,
Nations Portfolios paid its administrator combined fees at the rate of 0.10% of
the following Funds' average daily net assets: Nations Pacific Growth Fund,
Nations Emerging Markets Fund and Nations Global Government Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to Institutions which assist customers in purchasing
Primary Shares of the Funds.
Bank of New York, Avenue des Arts, 35 1040 Brussels, Belgium, serves as
custodian for the assets of the Nations International Equity Fund, Nations
Emerging Markets Fund, Nations Pacific Growth Fund and Nations Global Government
Income Fund.
First Data serves as the Transfer Agent for each of the Fund's Primary B Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas", together with Bank of New
York, called "Custodians") serves as custodian for the assets of each Fund
except Nations International Equity Fund, Nations Emerging Markets Fund, Nations
Pacific Growth Fund and Nations Global Government Income Fund. NationsBank of
Texas also serves as the sub-transfer agent for each Fund's Primary B Shares and
is located at 1401 Elm Street, Dallas, Texas 75202, and is a wholly owned
subsidiary of NationsBank Corporation. In return for providing custodial
services, NationsBank of Texas is entitled to receive, in addition to
out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1% of
the average daily net assets of each Fund for which it serves as custodian, (ii)
$10.00 per repurchase collateral transaction by such Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving such Funds. In return for
providing sub-transfer agency services for the Primary B Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountants to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Primary B Shares, are deducted from the Fund's total accrued
income before dividends are declared. These expenses include, but are not
limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; fees (including fees paid to Nations Fund's trustees, directors
and officers); federal and state securities registration and qualification fees;
brokerage fees and commissions; costs of preparing and printing prospectuses for
regulatory purposes and for distribution to existing shareholders; charges of
the Custodians and Transfer Agent; certain insurance premiums; outside auditing
and legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Primary B Shares also bear certain shareholder servicing
costs. Any general expenses of Nations Fund Trust, Nations Fund, Inc. and/or
Nations Portfolios that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust, Nations Fund, Inc. and/or Nations Portfolios or in such other manner as
the Board of Trustees or the relevant Board of Directors determines is fair and
equitable.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Portfolios and Nations Institutional
Reserves. The Nations Fund Family currently has more than 43 distinct investment
portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Money Market
Funds currently offer six classes of shares -- Primary A Shares, Primary B
Shares, Investor A Shares, Investor B Shares, Investor C Shares and Investor D
Shares. The Non-Money Market Funds currently offer five classes of
shares -- Primary A Shares, Primary B Shares, Investor A Shares, Investor C
Shares and Investor N Shares. Certain funds, however, do not offer shares of
each class. This Prospectus relates only to the Primary B Shares of the
following funds of Nations Fund Trust: Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund,
Nations Equity Index Fund, Nations Balanced Assets Fund, Nations Short-
Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund and Nations Strategic Fixed Income Fund. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Institution (as defined below) or Nations Fund at
1-800-621-2192.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
1940 Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Primary B Shares of the following funds of Nations Fund, Inc.: Nations Equity
Income Fund, Nations International Equity Fund and Nations Government Securities
Fund. To obtain additional information regarding the Funds' other classes of
shares which may be available to you, contact your Institution (as defined
below) or Nations Fund at 1-800-621-2192.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of
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Nations Fund, Inc.'s shares. Nations Fund, Inc.'s shares, when issued, will be
fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
NATIONS PORTFOLIOS: Nations Portfolios was incorporated in Maryland on January
23, 1995. Nations Portfolios' fiscal year end is March 31. As of the date of
this Prospectus, the authorized capital stock of Nations Portfolios consists of
50,000,000,000 shares of common stock, par value of $.001 per share, which are
divided into series or funds each of which consists of separate classes of
shares. This Prospectus relates only to the Primary B Shares of Nations Emerging
Markets Fund, Nations Pacific Growth Fund and Nations Global Government Income
Fund. To obtain additional information regarding the Funds' other classes of
shares which may be available to you, contact your Institution (as defined
below) or Nations Fund at 1-800-621-2192.
Shares of a fund and class have equal rights with respect to voting, except that
the holders of shares of a fund or class will have the exclusive right to vote
on matters affecting only the rights of the holders of such fund or class. In
the event of dissolution or liquidation, holders of each class will receive pro
rata, subject to the rights of creditors, (a) the proceeds of the sale of that
portion of the assets allocated to that class held in the respective fund of
Nations Portfolios, less (b) the liabilities of Nations Portfolios attributable
to the respective fund or class or allocated among the funds or classes based on
the respective liquidation value of each fund or class.
Shareholders of Nations Portfolios do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Portfolios. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Portfolios.
There are no preemptive rights applicable to any of Nations Portfolios' shares.
Nations Portfolios' shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Portfolios and, therefore, could be considered to be a controlling
person of Nations Portfolios for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Portfolios' SAI. It is anticipated that Nations
Portfolios will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on three separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust, Nations
Fund, Inc. and Nations Portfolios have entered into an indemnification agreement
that creates a right of indemnification from the investment company responsible
for any such misstatement, inaccuracy or incomplete disclosure that may appear
in this Prospectus.
About Your Investment
How To Buy Shares
Primary B Shares may be purchased through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank)
("Institutions") that have entered into selling agreements with Stephens.
Primary B Shares are purchased at net asset value per share without the
imposition of a sales charge according to procedures established by the
Institution. Institutions, however, may charge the accounts of their customers
("Customers") for services provided in connection with the purchase of shares.
Purchases of the Funds may be effected on days on which the New York Stock
Exchange (the "Exchange") is open for business ("NYSE Business Day"). A NYSE
Business Day is a "Business Day" as that term is used in this Prospectus.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
The Institutions have entered into Administration Agreements whereby they will
provide various shareholder services for their Customers that own Primary B
Shares. From time to time, Nations Fund may voluntarily reduce the maximum fees
payable for shareholder services.
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Nations Fund reserves the right to reject any purchase order. The issuance of
Primary B Shares is recorded on the books of the Funds, and share certificates
are not issued.
Purchase orders for Primary B Shares in the Funds which are received by Stephens
or by the Transfer Agent before the close of regular trading hours on the
Exchange (currently 4:00 p.m., Eastern time) on any Business Day are priced
according to the net asset value determined on that day but are not executed
until 4:00 p.m., Eastern time, on the Business Day on which immediately
available funds in payment of the purchase price are received by the Fund's
Custodian. Such payment must be received no later than 4:00 p.m., Eastern time,
by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Institution placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending
Institution.
Institutions are responsible for transmitting orders for purchases of Primary B
Shares by their Customers, and for delivering required funds, on a timely basis.
It is the responsibility of Stephens to transmit orders it receives to Nations
Fund.
Shareholder Administration Arrangements
The Funds have adopted a Shareholder Administration Plan (the "Administration
Plan") pursuant to which Institutions provide shareholder administration
services to their Customers who from time to time beneficially own Primary B
Shares. Payments under the Administration Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Funds, provided that the
annual rate may not exceed 0.60% of the average daily net asset value of the
Primary B Shares beneficially owned by Customers with whom the Institutions have
a servicing relationship. Additionally, in no event may the portion of the
shareholder administration fee that constitutes a "service fee," as that term is
defined in Article III, Section 26(b)(9) of the Rules of Fair Practice of the
NASD, exceed 0.25% of the average daily net asset value of such Primary B Shares
of a Fund. Holders of Primary B Shares will bear all fees paid to Institutions
under the Administration Plan.
Such shareholder services supplement the services provided by Stephens, First
Data and the Transfer Agent to shareholders of record. The shareholder services
provided by Institutions may include: (i) aggregating and processing purchase
and redemption requests for Primary B Shares from Customers and transmitting
promptly net purchase and redemption orders to Stephens or the Transfer Agent;
(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 Funds
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 Customers' 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 the
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 be reasonably
requested.
Nations Fund may suspend or reduce payments under the Administration Plan at any
time, and payments are subject to the continuation of the Administration Plan
described above and the terms of the Administration Agreement between
Institutions and Nations Fund. See the SAIs for more details on the
Administration Plan.
The Administration Plan also provides that, to the extent any portion of the
fees payable under the Administration Plan is deemed to be for services
primarily intended to result in the sale of Fund 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.
Nations Fund understands that Institutions may charge fees to their Customers
who are the owners of Primary B Shares in connection with their Customers'
accounts. These fees would be in addition to any amounts which may be received
by an Institution under its Administration Agreement with Nations Fund. The
Administration Agreement requires an Institution to disclose to its Customers
any compensation payable to the Institution by Nations Fund and any other
compensation payable by the Customers in connection with the investment of their
assets in Primary B Shares. Customers of Institutions should read this
Prospectus in light of the terms governing their accounts with their
Institutions.
Conflict of interest restrictions may apply to the receipt by Institutions of
compensation from Nations Fund in connection with the investment of fiduciary
assets in Primary B Shares. Institutions, including banks regu-
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lated 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, the Department of Labor, or
state securities commissions, are urged to consult their legal advisers before
investing such assets in Primary B Shares.
How To Redeem Shares
Customers may redeem all or part of their Primary B Shares in accordance with
instructions and limitations pertaining to their account at an Institution. It
is the responsibility of the Institutions to transmit redemption orders to
Stephens or to the Transfer Agent and to credit their Customers' accounts with
the redemption proceeds on a timely basis. It is the responsibility of Stephens
to transmit orders that it receives to Nations Fund. No charge for wiring
redemption payments is imposed by Nations Fund, although the Institutions may
charge their Customer accounts for these or other services provided in
connection with the redemption of Primary B Shares. Information concerning these
services and any charges are available from the Institutions. Redemption orders
are effected at the net asset value per share next determined after acceptance
of the order by Stephens or by the Transfer Agent.
With respect to the Funds, redemption proceeds are normally remitted in federal
funds wired to the redeeming Institution within three Business Days following
receipt of the order.
Nations Fund may redeem a shareholder's Primary B Shares if the balance in such
shareholder's account drops below $500 as a result of redemptions, and the
shareholder does not increase his or her balance to at least $500 on 60 days'
written notice. If a shareholder has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the shareholder
may be obliged to redeem all or a part of his or her Primary B Shares in the
Funds to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
How To Exchange Shares
The exchange feature enables a shareholder of Primary B Shares of a Fund to
acquire Primary B Shares of another Fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary B Shares for Primary B Shares of another Fund is made on the basis of
the next calculated net asset value per share of each Fund after the exchange
order is received.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
Provided your Institution allows telephone exchanges, during periods of
significant economic or market change, such telephone exchanges may be difficult
to complete. In such event, shares may be exchanged by mailing your request
directly to the Institution through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary B Shares may be exchanged by directing a request directly to the
Institution through which the original Primary B Shares were purchased or in
some cases Stephens or the Transfer Agent. Investors should consult their
Institution or Stephens for further information regarding exchanges. Your
exchange feature may be governed by your account agreement with your
Institution.
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How The Funds Value Their Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Funds are valued as of the close of regular trading
on the Exchange (currently 4:00 p.m., Eastern time) on each NYSE Business Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, President's Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The Funds' portfolio securities for which market quotations are readily
available are valued at market value. Short-term investments that will mature in
60 days or less are valued at amortized cost, which approximates market value.
All other securities are valued at their fair value following procedures
approved by the Trustees or Directors.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Bond Funds. Dividends from net investment income
are declared and paid each calendar quarter by the Equity Funds and the Balanced
Fund. Each Fund's net realized capital gains (including net short-term capital
gains) are distributed at least annually.
Primary B Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Primary B Shares of the Equity Funds and the Balanced Fund are
eligible to receive dividends when declared, provided however, that the purchase
order for such shares is received at least one day prior to the dividend
declaration and such shares continue to be eligible for dividends through and
including the day before the redemption order is executed.
The net asset value of Primary B Shares in the Funds will be reduced by the
amount of any dividend or distribution. Dividends and distributions are paid in
cash within five Business Days of the end of the month or quarter to which the
dividend relates. Certain purchasing Institutions may provide for the
reinvestment of dividends in additional Primary B Shares of the same Fund.
Dividends and distributions payable to a shareholder are paid in cash within
five Business Days after a shareholder's complete redemption of his or her
Primary B Shares in a Fund. Each Fund's net investment income available for
distribution to the holders of Primary B Shares will be reduced by the amount of
shareholder servicing fees payable to Institutions under the Servicing
Agreements.
TAX INFORMATION: Each Fund intends to qualify as a separate "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). Such qualification relieves a Fund of liability for Federal income tax
to the extent its earnings are distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by a Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares. (Federal income tax for
distributions to an Individual Retirement Account are generally deferred under
the Code.)
Corporate shareholders in the Funds may be entitled to the dividends-received
deduction for distributions from those Funds investing in the stock of domestic
corporations to the extent of the total qualifying dividends received by the
distributing Fund. Corporate shareholders of the Nations International Equity
Fund, Nations Emerging Markets Fund and Nations Pacific Growth Fund may be
eligible for the dividends-received deduction on the dividends (excluding the
net capital gains dividends) paid by these Funds to the extent that each such
Fund's income is derived from dividends (which, if received directly, would
qualify for such deduction) received from domestic corporations. In order to
qualify for the dividends-received deduction, a corporate shareholder must hold
the fund shares paying the dividends upon which the deduction is based for at
least 46 days.
Substantially all of the net realized long-term capital gains of the Non-Money
Market Funds, if any, will be distributed at least annually to such Funds'
shareholders. These Funds will generally have no tax liability with respect to
such gains, and the distributions will be taxable to such shareholders who are
not currently exempt
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from Federal income tax as long-term capital gains, regardless of how long the
shareholders have held such Funds' shares and whether such gains are received in
cash or reinvested in additional shares. The Money Market Funds do not expect to
realize long-term capital gains and, therefore, do not expect to distribute any
capital gain dividends.
Portions of the Nations International Equity Fund, Nations Emerging Markets
Fund, Nations Pacific Growth Fund and Nations Global Government Income Fund's
investment income may be subject to foreign income taxes withheld at their
source. Tax conventions between certain countries and the United States may
reduce or eliminate such taxes. Generally, more than 50% of the value of the
total assets of each Fund will consist of securities of foreign issuers, and
therefore each Fund may elect to "pass through" to its shareholders these
foreign taxes, if any. In such event each shareholder will be required to
include his or her pro rata portion thereof in his or her gross income, but will
be able to deduct or (subject to various limitations) claim a foreign tax credit
against U.S. income taxes for such amount.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon the rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, 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.
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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 GNMA, by FNMA and 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 on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
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.
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.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
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. Because SMBS were only recently introduced, established trading
markets for these securities have not yet been developed.
The average life of mortgage-backed securities varies with the maturities of the
underlying mortgage instruments, which have maximum maturities of 40 years. The
average life is likely to be substantially less than the original maturity of
the mortgage pools underlying the securities as the result of mortgage
prepayments, mortgage refinancings, or foreclosures. The rate of mortgage
prepayments, and hence the average life of the certificates, will be a function
of the level of interest rates, gen-
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eral 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. For additional information
concerning mortgage-backed securities, see the related SAI.
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 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 or partnerships.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the 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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily
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for temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of securities.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker-dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. In addition, the Nations Treasury Fund
may use reverse repurchase agreements for the purpose of investing the proceeds
in tri-party repurchase agreements as discussed below. Generally, the effect of
such a transaction is that the Funds can recover all or most of the cash
invested in the portfolio securities involved during the term of the reverse
repurchase agreement, while they will be able to keep the interest income
associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
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. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). 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 Fund's 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
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FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
United States Dollar. A Fund either enters into these transactions on a spot
(I.E., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract.
Foreign currency hedging transactions are an attempt to protect a 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. 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 will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as equity swap contracts, interest rate swaps,
currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged;
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the possible absence of a liquid secondary market for any particular instrument
at any time; and the possible need to defer closing out certain hedged positions
to avoid adverse tax consequences. A Fund may not purchase put and call options
which are traded on a national stock exchange in an amount exceeding 5% of its
net assets. Further information on the use of futures, options and other
derivative instruments, and the associated risks, is contained in the SAIs.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts ("GICs") 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 as 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 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. Therefore, GICs are generally considered
to be illiquid investments.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. The Non-Money Market Funds will not
hold more than 15% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by such Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Certain of the Funds may invest in lower-rated debt
securities. Lower-rated, high-yielding securities are those rated "Ba" or "B" by
Moody's or "BB" or "B" by S&P which are commonly referred to as "junk bonds."
These bonds provide poor protection for payment of principal and interest.
Lower-quality bonds involve greater risk of default or price changes due to
changes in the issuer's creditworthiness than securities assigned a higher
quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not avail-
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able, these lower-rated securities will be valued in accordance with procedures
established by the Funds' Board, including the use of outside pricing services.
Adverse publicity and changing investor perceptions may affect the ability of
outside pricing services used by a Fund to value its portfolio securities, and a
Fund's ability to dispose of these lower-rated bonds.
MONEY MARKET INSTRUMENTS: With respect to Non-Money Market Funds, the term
"money market instruments" refers to instruments with remaining maturities of
one year or less. With respect to Money Market Funds, the term "money market
instruments" refers to instruments with remaining maturities of 397 days or
less. Money market instruments may include, among other instruments, certain
U.S. Treasury Obligations, U.S. Government Obligations, bank instruments,
commercial instruments, repurchase agreements and municipal securities. Such
instruments are described in this Appendix A.
MUNICIPAL SECURITIES: 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.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax exempt leases. 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. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. 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.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. 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.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and does not
intend to exercise its rights thereunder for trading purposes.
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.
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OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be of credit worthy and when, in
their judgment, the income to be earned from the loan justifies the attendant
risks. The aggregate of all outstanding loans of a Fund may not exceed 30% of
the value of its total assets.
SHORT SALES: A short sale is the sale of a security that a Fund does not own. A
short sale is "against the box" if at all times when the short position is open
a Fund owns an equal amount of securities convertible into, or exchangeable
without further consideration for, securities of the same issuer as the
securities sold short.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts, and therefore backed by the full faith and
credit of the U.S. Treasury, in some cases payment of interest and principal on
such obligations is guaranteed by the U.S. Government, E.G., GNMA certificates;
in other cases interest and principal are not
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guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law. The market value of U.S. Government
Obligations may fluctuate due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
Obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government Obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable- or floating-interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally takes place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
39
<PAGE>
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
40
<PAGE>
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
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".
41
<PAGE>
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
42
<PAGE>
Prospectus
PRIMARY B SHARES
JULY 31, 1996
This Prospectus describes NATIONS MANAGED INDEX FUND
(the "Fund") of Nations Fund Trust, an open-end
management investment company in the Nations Fund
Family ("Nations Fund" or "Nations Fund Family").
This Prospectus describes one class of shares of the
Fund -- Primary B Shares.
This Prospectus sets forth concisely the information
about the Fund that a prospective purchaser of
Primary B Shares should consider before investing.
Investors should read this Prospectus and retain it
for future reference. Additional information about
Nations Fund Trust is contained in a separate
Statement of Additional Information (the "SAI") that
has been filed with the Securities and Exchange
Commission (the "SEC") and is available upon request
without charge by writing or calling Nations Fund at
its address or telephone number shown below. The
SAI, dated July 31, 1996, is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Fund. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to the Fund. As used herein
the "Adviser" shall mean NBAI and/or TradeStreet as
the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Nations
Managed
Index Fund
For Fund information call:
1-800-626-2275
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Fund
Prospectus Summary 3
Expenses Summary 4
Objective 5
How Objective Is Pursued 5
How Performance Is Shown 7
How The Fund Is Managed 7
Organization And History 9
About Your
Investment
How To Buy Shares 10
Shareholder Administration Arrangements 10
How To Redeem Shares 11
How To Exchange Shares 12
How the Fund Values Its Shares 12
How Dividends And Distributions Are Made; Tax
Information 12
Appendix A -- Portfolio Securities 13
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION WITH
THE OFFERING MADE BY THIS PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES: Nations Managed Index Fund's
investment objective is to seek, over the long-term, to provide a total
return which (gross of fees and expenses) exceeds the total return of
the Standard & Poor's 500 Composite Stock Price Index.
(Bullet) When consistent with the Fund's objective, the Fund will
employ various techniques to manage capital gain
distributions.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Fund.
See "How The Fund Is Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Managed Index Fund declares and
pays dividends from net investment income each calendar quarter. The
Fund's net realized capital gains, including net short-term capital
gains, are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. Investments in the Fund are not insured against loss of principal.
Investments by the Fund in common stocks and other equity securities
are subject to stock market risk, which is the risk that the value of
the stocks the Fund holds may decline over short or even extended
periods. Certain of the Fund's permissible investments may constitute
derivative securities. Certain types of derivative securities can,
under certain circumstances, significantly increase an investor's
exposure to market or other risks. For a discussion of these and other
factors, see "How Objective Is Pursued -- Risk Considerations" and
"Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Fund. The
following table summarizes shareholder transaction and operating expenses for
Primary B Shares of the Fund. The Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
PRIMARY B SHARES
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Index
Fund
Sales Load Imposed on Purchases None
Deferred Sales Load None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees 0.50%
Other Expenses 0.75%
Total Operating Expenses 1.25%
</TABLE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Primary B Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Index
Fund
1 Year $13
3 Years $40
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Primary B Shares will bear either directly or indirectly. The "Other Expenses"
figures in the above table are based on estimates for the fiscal year. For a
more complete description of the Fund's operating expenses, see "How The Fund Is
Managed." For a more complete description of the Shareholder Servicing Fees
payable by the Fund, see "Shareholder Administration Arrangements."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE GREATER OR LESS
THAN THOSE SHOWN.
4
<PAGE>
Objective
Nations Managed Index Fund's investment objective is to seek, over the long
term, to provide a total return which (gross of fees and expenses) exceeds the
total return of the Standard & Poor's 500 Composite Stock Price Index.
How Objective Is Pursued
NATIONS MANAGED INDEX FUND: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the "Index")1.
The S&P 500 Index is a value weighted index consisting of 500 common stocks
chosen for market size, liquidity and industry group representation.
The Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 500 Index while
minimizing the downside risk of underperforming the index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multifactor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration measure a stock relative to others in the same industry. Each stock
is assigned a ranking from 1 to 10 (best to worst). The Adviser then screens out
the lower rated stocks resulting in a portfolio of 300 to 350 holdings that
capture the investment characteristics of the Index.
In addition, when consistent with the Fund's investment objective, the Fund will
employ various techniques to manage capital gain distributions. These techniques
include utilizing a share identification methodology whereby the Fund will
specifically identify each lot of shares of portfolio securities that it holds,
which will allow the Fund to sell first those specific shares with the highest
tax basis in order to reduce the amount of recognized capital gains as compared
with a sale of identical portfolio securities, if any, with a lower tax basis.
The Fund will sell first those shares with the highest tax basis only when it is
in the best interest of the Fund to do so, and reserves the right to sell other
shares when appropriate. In addition, the Fund may, at times, sell portfolio
securities in order to realize capital losses. Such capital losses would be used
to offset realized capital gains thereby reducing capital gain distributions.
Additionally, the Adviser will, consistent with the multi-factor valuation model
discussed above, employ a low portfolio turnover strategy designed to defer the
realization of capital gains.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event the Fund will invest at least
65% of its total assets, in common stocks which are included in the S&P 500
Index. The Fund is expected, however, to maintain a position in high-quality
short-term debt securities and money market instruments to meet redemption
requests. If the Adviser believes that market conditions warrant a temporary
defensive posture, the Fund may invest without limitation in high-quality
short-term debt securities and money market instruments. These securities and
money market instruments may include domestic and foreign commercial paper,
certificates of deposit, bankers' acceptances and time deposits, U.S. Government
securities and repurchase agreements.
The 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 Commodity Futures
Trading Commission ("CFTC") and options thereon for market exposure risk
management. The Fund may lend its portfolio securities to qualified
institutional investors. The Fund also may invest in restricted, private
placement and other illiquid securities. In addition, the Fund may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied, on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market perfor-
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
5
<PAGE>
mance. S&P disclaims all warranties of merchantability or fitness for a
particular purpose or use with respect to the Index or any data included
therein.
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate for the Fund will not exceed 25%.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of the Fund, there is no assurance that it will be able to do so. No
single fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in the Fund are not insured against loss
of principal.
Investments by the Fund in common stocks and other equity securities are subject
to stock market risk. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Fund's permissible investments may 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 the Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Fund's investments in particular instruments, see
"Appendix A -- Portfolio Securities."
The techniques employed by the Adviser to seek to manage capital gain
distributions will generally only have the effect of deferring the realization
of capital gains. For example, to the extent that the capital gains recognized
on a sale of portfolio securities arise from the sale of specifically-identified
securities with higher tax bases, subsequent sales of the same portfolio
securities will be calculated by reference to the lower tax basis securities
that remain in the portfolio. Under this scenario, an investor who purchases
shares of the Fund after the first sale could receive capital gain distributions
that are higher than the distributions that would have been received if this
methodology had not been used. Therefore, certain investors actually could be
disadvantaged by the techniques employed by the Fund to seek to manage capital
gain distributions, depending on the timing of their purchase of Fund shares.
Even if there are no subsequent sales, upon a redemption or exchange of Fund
shares an investor will have to recognize gain to the extent that the net asset
value of Fund shares at such time exceeds such investor's tax basis in his or
her Fund shares. As a result, the taxable gain realized by an investor upon a
redemption or exchange may be greater (or the loss realized at such time may be
less) than otherwise would have been realized. The Fund's low portfolio turnover
strategy will have the same effect.
The various techniques employed by the Fund to manage capital gain distributions
may result in the accumulation of substantial unrealized gains in the Fund's
portfolio. Moreover, the realization of capital gains is not entirely within the
Fund's control because it is at least partly dependent on shareholder purchase
and redemption activity. Capital gain distributions may vary considerably from
year-to-year.
INVESTMENT LIMITATIONS: The Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry (for purposes of this limitation, U.S. Government securities are
not considered members of any industry.)
2. Make loans, except that the Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of the Fund's assets, the Fund will not hold
more than 10% of the voting securities of any issuer.
The investment objective and policies of the Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of the Fund change, shareholders should consider whether
the Fund remains an appropriate investment in light of their then current
position and needs.
6
<PAGE>
In order to register the Fund's shares for sale in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should the Fund determine that any
such commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Fund may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares of the Fund may be calculated on an average annual total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment, assuming the reinvestment of all dividend
and capital gain distributions. Aggregate total return reflects the total
percentage change in the value of the investment over the measuring period again
assuming the reinvestment of all dividends and capital gain distributions. Total
return may also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of the Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing the Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Fund with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Primary B Shares, the Fund offers Primary A, Investor A and
Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees and other expenses, which may cause the performance
of a class to differ from the performance of the other classes. Performance
quotations will be computed separately for each class of the Fund's shares. Any
fees charged by an institution and/or servicing agent directly to its customers'
accounts in connection with investments in the Fund will not be included in
calculations of total return or yield. The Fund's annual report contains
additional performance information and is available upon request without charge
from the Fund's distributor or your Institution, as defined below.
How The Fund Is Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Board of Trustees. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Fund. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Fund. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
in accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and
7
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sale orders for portfolio securities to certain financial institutions,
including, in the case of agency transactions, financial institutions which are
affiliated with the Adviser or which have sold shares in the Fund, if the
Adviser believes that the quality of the transaction and the commission are
comparable to what they would be with other qualified brokerage firms. From time
to time, to the extent consistent with its investment objective, policies and
restrictions, the Fund may invest in securities of companies with which
NationsBank has a lending relationship. For the services provided and expenses
assumed pursuant to an Investment Advisory Agreement, NBAI is entitled to
receive advisory fees, computed daily and paid monthly, at the annual rate of
0.50% of the average daily net assets of the Fund.
From time to time, NBAI and/or TradeStreet may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund.
For the services provided and the expenses assumed pursuant to a Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.10% of the average daily net assets of the
Fund.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund and Nations
Managed Index Fund. He has been Portfolio Manager for Nations Managed Index Fund
since its inception. Prior to assuming his position with TradeStreet, he was
Vice President and Structured Products Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1990. His
past experience includes portfolio management, derivatives management and
quantitative analysis for the Investment Management Group at NationsBank and
Sovran Bank of Tennessee. Mr. Golden received a B.B.A. in Finance from Belmont
University. He is a Chartered Financial Analyst candidate and a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised NationsBank and Nations Fund that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus, without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, 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.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Fund, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Fund.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Fund including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of the Fund, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Fund.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at an
annual rate of up to 0.10% of the Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Fund's administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Fund. Stephens may pay
service fees or commissions to Institu-
<PAGE>
tions which assist customers in purchasing Primary B Shares of the Fund.
First Data serves as the Transfer Agent for the Fund's Primary B Shares.
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of the Fund. NationsBank of Texas, which also serves as
the sub-transfer agent for the Fund's Primary B Shares, is located at 1401 Elm
Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, the Custodian is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of the Fund, (ii)
$10.00 per repurchase collateral transaction by the Fund, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Fund. In return for
providing sub-transfer agency services for the Shares of Nations Fund,
NationsBank of Texas is entitled to receive an annual fee from First Data of
$251,000.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Fund, as well as certain expenses
attributable to Primary B Shares, are deducted from the Fund's total accrued
income before dividends are declared. These expenses include, but are not
limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
taxes; interest; Trustees' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Primary B Shares also bear
certain shareholder servicing costs. Any general expenses of Nations Fund Trust
that are not readily identifiable as belonging to a particular investment
portfolio are allocated among all portfolios in the proportion that the assets
of a portfolio bears to the assets of Nations Fund Trust or in such other manner
as the Board of Trustees determines is fair and equitable.
Organization And History
The Fund is a member of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently consists of more than
43 distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Fund currently
offers four classes of shares -- Primary A Shares, Primary B Shares, Investor C
Shares and Investor A Shares. This Prospectus relates only to the Primary B
Shares of Nations Managed Index Fund of Nations Fund Trust. To obtain additional
information regarding the Fund's other classes of shares which may be available
to you, contact your Institution (as defined below) or Nations Fund at
1-800-626-2275.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
certain classes of shares of Nations Fund Trust and therefore could be
considered to be a controlling person of these classes and series of Nations
Fund Trust for purposes of the 1940 Act. For more detailed information
concerning the percentage of each class or series of shares over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act.
Shareholders will have the right to remove Trustees. Nations Fund Trust's Code
of Regulations provides that special meetings of shareholders shall be called at
the written request of the shareholders entitled to vote at least 10% of the
outstanding shares of Nations Fund Trust entitled to be voted at such meeting.
9
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About Your Investment
How To Buy Shares
Primary B Shares may be purchased through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank)
("Institutions") that have entered into selling agreements with Stephens.
Primary B Shares are purchased at net asset value per share without the
imposition of a sales charge according to procedures established by the
Institution. Institutions, however, may charge the accounts of their customers
("Customers") for services provided in connection with the purchase of shares.
Purchases of shares may be effected on days on which the New York Stock Exchange
(the "Exchange") is open for business ("NYSE Business Day"). Unless otherwise
specified, the term Business Day in this Prospectus refers to a NYSE Business
Day.
There is a minimum initial investment of $1,000 for each record holder; there is
no minimum subsequent investment.
The Institutions have entered into Administration Agreements whereby they will
provide various shareholder services for their Customers that own Primary B
Shares. From time to time, Nations Fund may voluntarily reduce the maximum fees
payable for shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Primary B Shares is recorded on the books of the Fund, and share certificates
are not issued. It is the responsibility of Institutions to record beneficial
ownership of Primary B Shares and to reflect such ownership in the account
statements provided to their Customers.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Primary B Shares which are
received by Stephens or by the Transfer Agent before the close of regular
trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Fund's Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Institution placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending
Institution.
Institutions are responsible for transmitting orders for purchases of Primary B
Shares by their Customers, and for delivering required funds, on a timely basis.
It is the responsibility of Stephens to transmit orders it receives to Nations
Fund.
Shareholder Administration Arrangements
The Fund has adopted a Shareholder Administration Plan (the "Administration
Plan") pursuant to which Institutions provide shareholder administrative
services to their Customers who from time to time beneficially own Primary B
Shares. Payments under the Administration Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Fund, provided that the
annual rate may not exceed 0.60% of the average daily net asset value of the
Primary B Shares beneficially owned by Customers with whom the Institutions have
a servicing relationship. Additionally, in no event may the portion of the
shareholder administration fee that constitutes a "service fee," as that term is
defined in Article III, Section 26(b)(9) of the Rules of Fair Practice of the
NASD, exceed 0.25% of the average daily net asset value of the Primary B Shares
of the Fund. Holders of Primary B Shares will bear all fees paid to Institutions
under the Administration Plan.
Such shareholder services supplement the services provided by Stephens, First
Data and the Transfer Agent to shareholders of record. The shareholder services
provided by Institutions may include: (i) aggregating and processing purchase
and redemption requests for Primary B Shares from Customers and transmitting
promptly net purchase and redemption orders to Stephens or the Transfer Agent;
(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 Fund
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 Customers' inquiries concerning their investment in Primary B
Shares; (vii) providing sub-accounting with respect to Primary B Shares
beneficially owned by Customers or
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<PAGE>
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 the 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 be reasonably requested.
Nations Fund may suspend or reduce payments under the Administration Plan at any
time, and payments are subject to the continuation of the Administration Plan
described above and the terms of the Administration Agreements between
Institutions and Nations Fund. See the SAI for more details on the
Administration Plan.
The Administration Plan also provides that, to the extent any portion of the
fees payable under the Administration Plan is deemed to be for services
primarily intended to result in the sale of Fund 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.
Nations Fund understands that Institutions may charge fees to their Customers
who are the owners of Primary B Shares in connection with their Customers'
accounts. These fees would be in addition to any amounts which may be received
by an Institution under its Administration Agreement with Nations Fund. The
Administration Agreement requires an Institution to disclose to its Customers
any compensation payable to the Institution by Nations Fund and any other
compensation payable by the Customers in connection with the investment of their
assets in Primary B Shares. Customers of Institutions should read this
Prospectus in light of the terms governing their accounts with their
Institutions.
Conflict of interest restrictions may apply to the receipt by Institutions of
compensation from Nations Fund in connection with the investment of fiduciary
assets in Primary B Shares. Institutions, 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, the Department of Labor, or state securities
commissions, are urged to consult their legal advisers before investing such
assets in Primary B Shares.
How To Redeem Shares
Customers may redeem all or part of their Primary B Shares in accordance with
instructions and limitations pertaining to their accounts at an Institution. It
is the responsibility of the Institutions to transmit redemption orders to
Stephens or to the Transfer Agent and to credit their Customers' accounts with
the redemption proceeds on a timely basis. It is the responsibility of Stephens
to transmit orders it receives to Nations Fund. No charge for wiring redemption
payments is imposed by Nations Fund, although the Institutions may charge their
Customer accounts for these or other services provided in connection with the
redemption of Primary B Shares. Information concerning these services and any
charges are available from the Institutions. Redemption orders are effected at
the net asset value per share next determined after acceptance of the order by
Stephens or by the Transfer Agent. Redemption proceeds are normally remitted in
federal funds wired to the redeeming Institution within three Business Days
following receipt of the order.
Nations Fund may redeem a shareholder's Primary B Shares if the balance in such
shareholder's account drops below $500 as a result of redemptions, and the
shareholder does not increase his or her balance to at least $500 on 60 days'
written notice. If a shareholder has agreed with a particular Institution to
maintain a minimum balance in his or her account at the Institution, and the
balance in such Institution account falls below that minimum, the shareholder
may be obliged to redeem all or a part of his or her Primary B Shares in the
Fund to the extent necessary to maintain the required minimum balance in such
Institution account. Nations Fund also may redeem shares involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
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<PAGE>
How To Exchange Shares
The exchange feature enables a shareholder of Primary B Shares of the Fund to
acquire Primary B Shares of another fund when that shareholder believes that a
shift between Funds is an appropriate investment decision. An exchange of
Primary B Shares for Primary B Shares of another fund is made on the basis of
the next calculated net asset value per share of each fund after the exchange
order is received.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
Provided your institution allows telephone exchanges, during periods of
significant economic or market change, telephone exchanges may be difficult to
complete. In such event, shares may be exchanged by mailing your request
directly to the Institution through which the original shares were purchased.
Investors should consult their Institution or Stephens for further information
regarding exchanges.
Primary B Shares may be exchanged by directing a request directly to the
Institution through which the original Primary B Shares were purchased or in
some cases Stephens or the Transfer Agent. Investors should consult their
Institution or Stephens for further information regarding exchanges. Your
exchange feature may be governed by your account agreement with your
Institution.
How The Fund Values Its Shares
The net asset value of a share of each class is calculated by dividing the total
value of its assets, less liabilities, by the number of shares in the class
outstanding. Shares of the Fund are valued as of the close of regular trading on
the Exchange (currently 4:00 p.m., Eastern time) on each NYSE Business Day.
Currently, the days on which the Exchange is closed (other than weekends) are:
New Year's Day, President's Day, Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Portfolio securities for which market quotations are readily available are
valued at market value. Short-term investments that will mature in 60 days or
less are valued at amortized cost, which approximates market value. All other
securities are valued at their fair value following procedures approved by the
Trustees.
How Dividends And Distributions Are Made;
Tax Information
DIVIDENDS AND DISTRIBUTIONS: Even though the Fund seeks to manage taxable
distributions, the Fund may be expected to earn and distribute taxable income
and may also be expected to realize and distribute capital gains from time to
time. Dividends from net investment income are declared and paid each calendar
quarter by the Fund. The Fund's net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Primary B Shares of the Fund are eligible to receive dividends when declared,
provided however, that the purchase order for such shares is received at least
one day
12
<PAGE>
prior to the dividend declaration and such shares continue to be eligible for
dividends through and including the day before the redemption order is executed.
The net asset value of Primary B Shares will be reduced by the amount of any
dividend or distribution. Dividends and distributions are paid in cash within
five Business Days of the end of the quarter to which the dividend relates.
Certain purchasing Institutions may provide for the reinvestment of dividends in
additional Primary B Shares of the Fund. Dividends and distributions payable to
a shareholder are paid in cash within five Business Days after a shareholder's
complete redemption of his or her Primary B Shares in the Fund. The Fund's net
investment income available for distribution to the holders of Primary B Shares
will be reduced by the amount of shareholder servicing fees payable to
Institutions under the Servicing Agreements.
TAX INFORMATION: The Fund intends to qualify as a separate "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves the Fund of liability for Federal income tax to the
extent its earnings are distributed in accordance with the Code.
The Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Such distributions
by the Fund of its net investment income (including net foreign currency gains)
and the excess, if any, of its net short-term capital gain over its net
long-term capital loss will be taxable as ordinary income to shareholders who
are not currently exempt from Federal income tax, whether such income is
received in cash or reinvested in additional shares.
Corporate shareholders may be entitled to the dividends received deduction for
distributions from the Fund's investment in the stock of domestic corporations
to the extent of the total qualifying dividends received by the Fund.
Substantially all of the net realized long-term capital gains of the Fund, if
any, will be distributed at least annually to the Fund's shareholders. The Fund
will generally have no tax liability with respect to such gains, and the
distributions will be taxable to such shareholders who are not currently exempt
from Federal income tax as long-term capital gains, regardless of how long the
shareholders have held the Fund's shares and whether such gains are received in
cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may also be subject to state and local taxes.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply. If
the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding, the Fund
is required by the Internal Revenue Service to withhold 31% of any dividend
(other than exempt-interest dividends) and/or redemption (including exchange
redemptions). Amounts withheld are applied to the shareholder's Federal tax
liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Fund
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Fund and its shareholders.
It is not intended as a substitute for careful tax planning. Accordingly,
potential investors should consult their tax advisors with specific reference to
their own tax situations. Further tax information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How Objective Is Pursued" section of the Prospectus
identifies the Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
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BORROWINGS: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Fund may
borrow money from banks for temporary purposes in amounts of up to one-third of
its total assets, provided that borrowings in excess of 5% of the value of the
Fund's total assets must be repaid prior to the purchase of portfolio
securities. Under the requirements of the 1940 Act, the Fund is required to
maintain an asset coverage (including the proceeds of the borrowings) of at
least 300% of all borrowings.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objective. In addition, the Fund 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 the Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: The Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FOREIGN CURRENCY TRANSACTIONS: The Fund may enter into foreign currency exchange
transactions to convert foreign currencies to and from the U.S. dollar. The Fund
either enters into these transactions on a spot (I.E., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or uses forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract is an obligation by the Fund to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract.
Foreign currency hedging transactions are an attempt to protect the 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. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Fund may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect the Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options) and options on foreign
currencies, and investing in futures contracts for the purchase or sale of
instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, the Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. The Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not knowingly
invest more than 15% of the value of its net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
Fund sells its shares. Repurchase agreements, time deposits and guaranteed
investment contracts that do not provide for payment to the Fund within seven
days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with its investment objective and policies, the Fund may
purchase securities which are not registered under the Securities Act of 1933,
as amended (the "1933 Act") but which can be sold to "qualified
14
<PAGE>
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by the Fund's Board of Trustees or the Adviser, acting under
guidelines approved and monitored by the Fund's Board, after considering trading
activity, availability of reliable price information and other relevant
information, that an adequate trading market exists for that security. To the
extent that, for a period of time, qualified institutional buyers cease
purchasing such restricted securities pursuant to Rule 144A and Section 4(2),
the level of illiquidity of a Fund holding such securities may increase during
such period.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the 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 the Fund bears directly in connection with its
own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into repurchase agreements jointly with other
investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 30% of the
value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Fund may purchase
and sell futures contracts and related options with respect to non-U.S. stock
indices, non-U.S. interest rates and foreign currencies, that have been approved
by the CFTC for investment by U.S. investors, for the purpose of hedging against
changes in values of the Fund's securities or changes in the prevailing levels
of interest rates or currency exchange rates. The contracts entail certain
risks, including but not limited to the following: no assurance that futures
contracts transactions can be offset at favorable prices; possible reduction of
the Fund's total return due to the use of hedging; possible lack of liquidity
due to daily limits on price fluctuation; imperfect correlation between the
contracts and the securities or currencies being hedged; and potential losses in
excess of the amount invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless the Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that the
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it
15
<PAGE>
is not obligated to do so by law. The market value of U.S. Government
obligations may fluctuate due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
16
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Money Market Funds") of
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Investor A
Shares.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET
ASSET VALUE OF $1.00 PER SHARE. INVESTMENTS IN THE
MONEY MARKET FUNDS ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE
NO ASSURANCE THAT THE MONEY MARKET FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs bear the same date as this
Prospectus and are incorporated by reference in
their entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Funds. TradeStreet Investment Associates,
Inc. ("TradeStreet") is sub-investment adviser to
the Funds. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Prime Fund
Nations Treasury Fund
Nations Government Money
Market Fund
Nations Tax Exempt Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 8
How Objectives Are Pursued 9
How Performance Is Shown 12
How the Funds Are Managed 13
Organization And History 16
About Your Investment
How To Buy Shares 18
How To Redeem Shares 20
How To Exchange Shares 22
Shareholder Servicing And Distribution Plans 23
How The Funds Value Their Shares 24
How Dividends And Distributions Are Made; Tax
Information 25
Appendix A -- Portfolio Securities 27
Appendix B -- Description Of Ratings 34
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment objective
is to seek as high a level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to seek as
high a level of current interest income exempt from Federal
income taxes as is consistent with liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations
Nations Prime Nations Treasury Government Money
SHAREHOLDER TRANSACTION EXPENSES Fund Fund Market Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge None None None
</TABLE>
<TABLE>
<CAPTION>
Nations Tax
SHAREHOLDER TRANSACTION EXPENSES Exempt Fund
<S> <C>
Sales Load Imposed on Purchases None
Deferred Sales Charge None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Nations Prime Nations Treasury Government Money
Fund Fund Market Fund
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .14% .14% .12%
Rule 12b-1 Fees (After Fee Waivers) .10% .10% .10%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .16% .16% .18%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .65% .65% .65%
</TABLE>
<TABLE>
<CAPTION>
Nations Tax
Exempt Fund
<S> <C>
Management Fees (After Fee Waivers) .13%
Rule 12b-1 Fees (After Fee Waivers) .0%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .17%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .55%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations Treasury Nations Government
Nations Prime Fund Fund Money Market Fund
<S> <C> <C> <C>
1 Year $ 7 $ 7 $ 7
3 Years $ 21 $ 21 $ 21
5 Years $ 36 $ 36 $ 36
10 Years $ 81 $ 81 $ 81
</TABLE>
<TABLE>
<CAPTION>
Nations Tax Exempt
Fund
<S> <C>
1 Year $ 6
3 Years $ 18
5 Years $ 31
10 Years $ 69
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in each
Fund will bear either directly or indirectly. Certain figures in the above table
are based on amounts incurred during each Fund's most recent fiscal year and
have been restated as necessary to reflect current service provider fees. There
is no assurance that any fee waivers and reimbursements will continue beyond the
current fiscal year. If fee waivers and/or reimbursements are discontinued, the
amounts contained in the "Examples" above may increase. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Investor A Shares of the indicated
Fund would be as follows: Nations Prime Fund -- .20%, .16% and .71%,
respectively; Nations Treasury Fund -- .20% .16% and .71%, respectively; Nations
Government Money Market Fund -- .40%, .18% and .93%, respectively. Absent fee
waivers and expense reimbursements, "Management Fees," "12b-1 Fees", "Other
Expenses" and "Total Operating Expenses" for Nations Tax Exempt Fund would have
been .40%, .10%, .17% and .92%, respectively.
4
<PAGE>
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. Shareholders of the Funds will receive unaudited
semi-annual reports describing the Funds' investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92 5/31/91*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0438 0.0475 0.0283 0.0293 0.0470 0.0617
Dividends from net
investment income (0.0438) (0.0475) (0.0283) (0.0293) (0.0470) (0.0617)
Total dividends and
distributions (0.0438) (0.0475) (0.0283) (0.0293) (0.0470) (0.0617)
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.48% 4.85% 2.86% 2.97% 4.81%+++ 7.31%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 1,099,490 $ 698,358 $ 511,833 $ 306,376 $ 281,101 $ 144,202
Ratio of operating
expenses to average
net assets 0.65%+ 0.75% 0.65% 0.65% 0.65% 0.65%+
Ratio of net investment
income to average net
assets 5.27%+ 4.78% 2.85% 2.90% 4.67% 6.69%+
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 0.72%+ 0.83% 0.72% 0.71% 0.77% 0.79%+
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.0433 $ 0.0467 $ 0.0276 $ 0.0287 $ 0.0458 $ 0.0603
</TABLE>
* Nations Prime Fund Investor A Shares commenced operations on July 16, 1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 05/31/95 5/31/94 5/31/93 5/31/92 5/31/91*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0429 0.0457 0.0262 0.0272 0.0448 0.0592
Dividends from net
investment income (0.0429) (0.0457) (0.0262) (0.0272) (0.0448) (0.0592)
Distributions from net
realized capital gains (0.0000)# (0.0000)# -- -- -- --
Total dividends and
distributions (0.0429) (0.0457) (0.0262) (0.0272) (0.0448) (0.0592)
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 4.36 % 4.65 % 2.67 % 2.77 % 4.57 +++ 6.98%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 89,584 $ 107,475 $ 74,195 $ 105,828 $ 90,917 $ 37,265
Ratio of operating
expenses to average
net assets 0.65 %+ 0.67 % 0.65 % 0.65 % 0.64 % 0.61 %+
Ratio of net investment
income to average net
assets 5.17 %+ 4.62 % 2.62 % 2.67 % 4.47 % 6.53 %+
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 0.72 %+ 0.72 % 0.71 % 0.71 % 0.76 % 0.83 %+
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.0424 $ 0.0452 $ 0.0257 $ 0.0266 $ 0.0435 $ 0.0570
</TABLE>
* Nations Treasury Fund Investor A Shares commenced operations on July 16,
1990.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001.
6
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0162 0.0522 0.0340 0.0256 0.0358 0.0571
Distributions:
Dividends from net investment income (0.0162) (0.0522) (0.0340) (0.0256) (0.0358) (0.0571)
Dividends from net realized capital
gains -- -- (0.0000)# -- -- --
Total dividends and distributions (0.0162) (0.0522) (0.0340) (0.0256) (0.0358) (0.0571)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.62% 5.34% 3.45% 2.60% 3.63%+++ 5.86%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in 000's) $ 48,742 $ 26,175 $ 20,173 $ 10,499 $ 13,851 $ 8,949
Ratio of operating expenses to
average net assets 0.65%+ 0.65% 0.65% 0.61% 0.42% 0.43%+
Ratio of net investment income to
average net assets 4.85%+ 5.23% 3.44% 2.60% 3.55% 5.49%+
Ratio of operating expenses to
average net assets without waivers 0.94%+ 0.92% 0.94% 0.87% 0.58% 0.62% +
Net investment income per share
without waivers and/or expense
reimbursements $ 0.0152 $ 0.0495 $ 0.0311 $ 0.0231 $ 0.0341 $ 0.0551
</TABLE>
* Nations Government Money Market Fund Investor A Shares commenced operations
on February 11, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91*
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0104 0.0335 0.0231 0.0198 0.0266 0.0422
Dividends from net
investment income (0.0104) (0.0335) (0.0231) (0.0198) (0.0266) (0.0422)
Total dividends and
distributions (0.0104) (0.0335) (0.0231) (0.0198) (0.0266) (0.0422)
Net asset value, end of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Total return++ 1.04% 3.40% 2.36% 2.00% 2.68%+++ 4.30%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 128,414 $ 126,207 $ 151,714 $ 119,552 $ 80,158 $ 1,690
Ratio of operating
expenses to average
net assets 0.55%+ 0.55% 0.52% 0.48% 0.55% 0.42%+
Ratio of net investment
income to average net
assets 3.10%+ 3.37% 2.34% 1.98% 2.50% 4.23%+
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 0.83%+ 0.82% 0.84% 0.84% 0.72% 0.60%+
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.0095 $ 0.0309 $ 0.0199 $ 0.0162 $ 0.0248 $ 0.0404
</TABLE>
* Nations Tax Exempt Fund Investor A Shares commenced operations on April 5,
1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization
8
<PAGE>
of current income to the extent consistent with the preservation of capital and
the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, 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 or instrumentalities ("U.S. Government Obligations"), bank and
commercial instruments that may be available in the money markets, high quality
short-term taxable obligations issued by state and local governments, their
agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified First Tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and 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 or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in obligations the
principal and interest of which are backed by the full faith and credit of the
United States Government, provided that such Fund shall, under normal market
conditions, invest at least 65% of its total assets in U.S. Treasury bills,
notes and bonds and other instruments issued directly by the U.S. Government.
The Fund may lend its portfolio securities to qualified institutional investors.
For more information concerning these instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For more information
concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in
9
<PAGE>
the opinion of counsel to the issuer or bond counsel, is exempt from regular
Federal income tax ("Municipal Securities"). The Fund will not knowingly
purchase securities the interest on which is subject to such tax. A portion of
the Fund's assets, however, may be invested in private activity bonds, the
interest on which may be treated as a specific tax preference item under the
Federal alternative minimum tax. See "How Dividends And Distributions Are Made;
Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA") or
Thomson BankWatch, Inc. ("BankWatch") or Aa or higher by Moody's Investors
Service, Inc. ("Moody's"), in the case of bonds; rated "A" or higher by D&P,
Fitch, S&P, IBCA, BankWatch or Moody's in the case of certain bonds which are
unrated securities (I.E., lacking a short-term rating from the requisite number
of nationally recognized statistical rating organizations); rated "D-1" or
higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or "MIG-1" by Moody's in
the case of notes; rated "D-1" or higher by D&P, "F-1" or higher by Fitch, or
"VMIG-1" by Moody's in the case of variable rate demand notes; or rated "D-1" or
higher by D&P, "F-1" or higher by Fitch, "A-1" or higher by S&P, or "Prime-1" by
Moody's in the case of tax-exempt commercial paper. D&P, Fitch, S&P, Moody's,
IBCA and BankWatch are the six nationally recognized statistical rating
organizations (collectively, "NRSROs"). Securities that are unrated at the time
of purchase will be determined to be of comparable quality by the Adviser
pursuant to guidelines approved by Nations Fund Trust's Board of Trustees. The
applicable Municipal Securities ratings are described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund 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 or partnerships. For more information
concerning the Fund's investments, see "Appendix A."
RISK CONSIDERATIONS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program
10
<PAGE>
for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds' investment in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments in obligations of domestic banks.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or are privately
placed), may enter into repurchase agreements and may lend portfolio securities
in accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of such Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations. The investment objectives and policies of the Funds, unless
otherwise specified, may be changed without shareholder approval. If the
investment objective or policies of a Fund change, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current position and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in its best interests, it may consider terminating sales
of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost (see "How The Funds Value Their
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended (the "1940 Act"), some of
which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with a
remaining maturity of more than 397 days, provided such obligations are subject
to demand features or resets and to maintaining a dollar-weighted average
portfolio maturity of 90 days or less. Quality requirements generally limit
investments to U.S. dollar denominated instruments determined to present minimal
credit risks and that, at the time of acquisition, are rated in the first or
second rating categories (known as "first tier" and "second tier" securities,
respectively) by the required
11
<PAGE>
number of NRSROs (at least two or, if only one NRSRO has rated the security,
that one NRSRO) or, if unrated by any NRSRO, are (i) comparable in priority and
security to a class of short-term securities of the same issuer that has the
required rating, or (ii) determined to be comparable in quality to securities
having the required rating. The diversification requirements provide generally
that a Money Market Fund may not at the time of acquisition invest more than 5%
of its assets in securities of any one issuer except that up to 25% of total
assets may be invested in the first tier securities of a single issuer for three
business days. Additionally, (except for Nations Tax Exempt Fund) no more than
5% of total assets may be invested, at the time of acquisition, in second tier
securities in the aggregate, and any investment in second tier securities of one
issuer is limited to the greater of 1% of total assets or one million dollars.
Securities issued by the U.S. Government, its agencies, authorities or
instrumentalities are exempt from the quality requirements, other than minimal
credit risk. In the event that a Fund's investment restrictions or permissible
investments are more restrictive than the requirements of Rule 2a-7, the Fund's
own restrictions will govern.
How Performance Is Shown
From time to time, a Fund may advertise the "yield" and "effective yield" of a
class of shares, and Nations Tax Exempt Fund may advertise the "tax equivalent
yield" of a class of shares. YIELD, EFFECTIVE YIELD AND TAX-EQUIVALENT YIELD
FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in such class over a seven-day period identified in the
advertisement. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate. The tax-equivalent yield will always be higher than the
"yield" of a class of shares in Nations Tax Exempt Fund.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling agents and/or
servicing agents to their customers' accounts for automatic investment or other
cash management services will not be included in calculations of yield.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
B, Investor C and Investor D Shares. Each class of shares may bear different
sales charges, shareholder servicing fees and other expenses, which may cause
the performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's selling agent.
12
<PAGE>
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned subsidiary of NationsBank Corporation, a bank holding company
organized as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. With respect to the Nations Tax Exempt
Fund, the Adviser is authorized to allocate purchase and sale orders for
portfolio securities to certain financial institutions, including, in the case
of agency transactions, financial institutions which are affiliated with the
Adviser or which have sold shares in such Fund, if the Adviser believes that the
quality of the transaction and the commission are comparable to what they would
be with other qualified brokerage firms. From time to time, to the extent
consistent with its investment objective, policies and restrictions, each Fund
may invest in securities of companies with which NationsBank has a lending
relationship. For the services provided and expenses assumed pursuant to various
Investment Advisory Agreements, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.25% of the first $250
million of the combined average daily net assets of both Nations Prime Fund and
Nations Treasury Fund, plus 0.20% of the combined average daily net assets of
such Funds in excess of $250 million; and 0.40% of the average daily net assets
of each of Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advi-
13
<PAGE>
sory fees and/or expenses payable by a Fund. In addition, the Adviser may from
time to time compensate Agents, as defined below, for providing certain services
to customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; and Nations Treasury Fund -- 0.18%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; and Nations Treasury Fund -- 0.18%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.055%; Nations Tax Exempt Fund -- 0.055%;
Nations Prime Fund -- 0.055%; and Nations Treasury Fund -- 0.055%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysis.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager for Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for Wil-
14
<PAGE>
liam Lowry & Associates. Ms. Sherman received a B.S. in Business Administration
from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements 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 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 such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to Co-Administration
Agreements. Under the Co-Administration Agreements, First Data provides various
administrative and accounting services to the Funds, including performing
calculations necessary to determine net asset values and dividends, preparing
tax returns and financial statements and maintaining the portfolio records and
certain general accounting records for the Funds. For the services rendered
pursuant to the Administration and Co-Administration Agreements, Stephens and
First Data are entitled to receive a combined fee at the annual rate of up to
0.10% of each Fund's average daily net assets. For the fiscal period from
December 1, 1995 to March 31, 1996, after waivers, Nations Fund Trust paid its
administrators combined fees at the indicated rate of the following Funds'
average daily net assets: Nations Government Money Market Fund, and Nations Tax
Exempt Fund -- 0.09%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
and Nations Treasury Fund -- 0.05%.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations
15
<PAGE>
Fund has entered into a distribution agreement with Stephens that provides that
Stephens has the exclusive right to distribute shares of the Funds. Stephens may
pay service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A., serves as each Fund's custodian (the "Custodian").
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of each Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
Directors' or Trustees' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor A Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and distribution costs. Any general expenses of
Nations Fund Trust and/or of Nations Fund, Inc. that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund Trust or of Nations Fund, Inc. or in such other
manner as the Board of Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares, Investor C Shares and Investor D Shares. This
Prospectus relates only to the Investor A Shares of Nations Government Money
Market Fund and Nations Tax Exempt Fund of Nations Fund Trust. To obtain
additional information regarding the Funds' other classes of shares which may be
available to
16
<PAGE>
you, contact your Selling Agent (as defined below) or Nations Fund at
1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of a fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of instances
where the 1940 Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC. Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or portfolios, each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor A Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of Directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of
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10% or more of Nations Fund, Inc.'s outstanding shares. There are no preemptive
rights applicable to any of Nations Fund, Inc.'s shares. Nations Fund, Inc.'s
shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings, except when required by
the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Fund has established various procedures for purchasing Investor A Shares in
order to accommodate different investors. Purchase orders may be placed directly
with a Fund or through banks, broker/dealers or other financial institutions
(including certain affiliates of NationsBank) that have entered into a
shareholder servicing agreement ("Servicing Agreement") with Nations Fund
("Servicing Agents") and/or a sales support agreement ("Sales Support
Agreement") with Stephens ("Selling Agents"). Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents".
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
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(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares of the Money Market Funds are purchased at net asset value per
share without the imposition of a sales charge. Purchases may be effected only
on days on which the Federal Reserve Bank of New York is open for business (a
"Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH A FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund with a
reinvestment slip to the address set forth above. To purchase additional shares
by wire, follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund). Absent prior arrangement with Stephens or the Transfer Agent,
purchase orders received after such time on any given day will not be accepted;
notice thereof will be given to the Selling Agent transmitting the order, and
any funds received will be returned promptly to the sending Selling Agent. Any
late purchase orders that are not rejected pursuant to such a prior arrangement
will be executed on the following Business Day.
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If federal funds are not available by 4:00 p.m., Eastern time, the order will be
canceled. Investor A Shares are purchased at the net asset value per share next
determined after receipt of the order by Stephens or by the Transfer Agent.
The Selling Agents are responsible for transmitting orders for purchases by
their Customers and delivering required funds on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Selling Agent.
TELEPHONE TRANSACTIONS: An investor may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
For shareholders who purchased their shares through an Agent, redemption orders
should be transmitted by telephone or in writing through the same Agent.
Redemption orders are effected at the net asset value per share next determined
after receipt of the order by the Fund, Stephens, or the Transfer Agent, as the
case may be.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), and payment will normally be wired the same day.
Nations Fund reserves the right to wire redemption proceeds within three
Business Days after receiving the redemption order if, in the judgment of NBAI,
an earlier payment could adversely impact a Fund. However, redemption proceeds
for shares purchased by check may not be remitted until at least 15 days after
the date of purchase to ensure that the check has cleared; a certified check,
however, is deemed to be cleared immediately. Redemption orders received by
Stephens, the Fund or by the
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Transfer Agent after 3:00 p.m., Eastern time (12 noon, Eastern time, with
respect to Nations Tax Exempt Fund and Nations Government Money Market Fund),
will be processed on the next Business Day.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of the Funds involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
Free checkwriting is available with respect to Investor A Shares of the Funds.
With this service, a shareholder may write checks in the amount of $250 or more.
To obtain checks, a shareholder must complete the signature section included
within the Account Application Form. To establish this checkwriting service
after opening an account in one of the Funds, the shareholder must contact
his/her Selling Agent by telephone or mail to obtain an Application Form. A
shareholder will receive the dividends and distributions declared on the shares
to be redeemed up to the day that a check is presented to the Custodian for
payment. Upon 30 days' prior written notice to shareholders, the checkwriting
privilege may be modified or terminated. An investor cannot close an account in
the Funds by writing a check.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings account
in a stated amount of not less than $25 on or about the 10th or 25th day of the
applicable month of withdrawal. Investor A Shares will be redeemed as necessary
to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling Agent or by Nations Fund at any time.
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How To Exchange Shares
SHARES PURCHASED DIRECTLY THROUGH THE FUNDS, A SELLING AGENT, STEPHENS OR THE
TRANSFER AGENT: The exchange feature enables a shareholder of Investor A Shares
of a Money Market Fund to acquire Investor A Shares of another Fund when that
shareholder believes that a shift between Funds is an appropriate investment
decision.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
An investor who owns his or her shares through a Nations Fund IRA that initially
invests in Investor A Shares of a Money Market Fund may exchange those shares
for Investor N Shares of a non-money market fund offered by Nations Fund.
Additionally, Investor N Shares of a non-money market fund acquired through such
an exchange prior to January 1, 1996, will, upon redemption, be subject to the
contingent deferred sales charge ("CDSC") schedule applicable to the acquired
shares. For purposes of determining the applicable rate of the CDSC, the date of
the exchange will be deemed to be the date of purchase of the Investor A or
Investor N Shares.
SHARES ACQUIRED THROUGH THE NATIONS FUND AUTOMATIC EXCHANGE FEATURE: An investor
who is participating in the Nations Fund Automatic Exchange Feature ("AEF") may
acquire Investor A or Investor C Shares of a non-money market fund offered by
Nations Fund. In addition, Investor C Shares of a non-money market fund acquired
through such exchange will, upon redemption, be subject to the CDSC schedule
applicable to the acquired shares. For purposes of determining the applicable
rate of the CDSC, the date of the exchange will be deemed to be the date of the
purchase of the Investor C Shares. The AEF requires a minimum exchange amount of
$25 on a monthly or quarterly basis. Exchanges will occur on or about the 15th
or 30th day of the applicable month. The AEF may be established by directing a
request to the Transfer Agent by telephone or in writing. For more information
concerning the AEF, an investor should contact his/her Selling Agent.
GENERAL: An exchange of Investor A Shares for shares of another fund is made on
the basis of the next calculated net asset value per share of each fund after
the exchange order is received. The Funds and each of the other funds of Nations
Fund may limit the number of times this exchange feature may be exercised by a
shareholder within a specified period of time. Also, the exchange feature may be
terminated or revised at any time by Nations Fund upon such notice as may be
required by applicable regulatory agencies (presently sixty days for termination
or material revision), provided that the exchange feature may be terminated or
materially revised without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective(s) and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for
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Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within ninety days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shareholders should consider
communicating their exchange requests by mail.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and Directors have
approved a Shareholder Servicing and Distribution Plan (the "Investor A Plan")
with respect to Investor A Shares of the Funds. Pursuant to the Investor A Plan,
the Funds may pay Stephens (or any other person) for distribution-related
expenses and Selling Agents for sales support expenses incurred in connection
with Investor A Shares. Payments under the Investor A Plan will be calculated
daily and paid monthly at a rate or rates set from time to time by the Trustees
or Directors provided that the annual rate may not exceed 0.10% of the average
daily net asset value of Investor A Shares of the Funds. Payments to Stephens
under the Investor A Plan may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including expenses
of organizing and conducting sales seminars, printing prospectuses, statements
of additional information (and supplements thereto) and reports for other than
existing shareholders, preparation and distribution of advertising material and
sales literature and the costs of administering the Investor A Plan. The fees
payable to Selling Agents are used primarily to compensate Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Fund to Customers. The Funds may not pay for
shareholder servicing activities under the Investor A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan. Any such additional
consideration or incentive program may be terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at
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any time, and payments are subject to the continuation of the Investor A Plan
described above and the terms of the Sales Support Agreement between Selling
Agents and Stephens. See the SAIs for more information on the Investor A Plan.
In addition, the Trustees and Directors have approved a shareholder servicing
plan (the "Servicing Plan") with respect to Investor A Shares of the Funds.
Pursuant to the Servicing Plan, the Funds may pay Servicing Agents that have
entered into a Servicing Agreement with Nations Fund for certain shareholder
support services that are provided by the Servicing Agents. Payments under the
Funds' Servicing Plan are calculated daily and paid monthly at a rate or rates
set from time to time by the Funds, provided that the annual rate may not exceed
0.25% of the average daily net asset value of each Fund's Investor A Shares. The
shareholder services provided by Servicing Agents may include general
shareholder liaison services; processing purchase, exchange, and redemption
requests from Customers and placing orders with Stephens or the Transfer Agent;
processing dividend and distribution payments from a Fund on behalf of
Customers; providing information periodically to Customers, including
information showing their position in Investor A Shares; providing
sub-accounting with respect to Investor A Shares beneficially owned by Customers
or the information necessary for sub-accounting; responding to inquiries from
Customers concerning their investment in Investor A Shares; arranging for bank
wires; and providing such other similar services as may be reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of a Fund's Investor A Shares for various services provided in
connection with a Customer's account. These fees would be in addition to any
amounts received by a Selling Agent under its Sales Support Agreement with
Stephens or by a Servicing Agent under its Servicing Agreement with Nations
Fund. The Sales Support Agreements and Servicing Agreements require Agents to
disclose to their Customers any compensation payable to the Agent by Stephens or
Nations Fund and any other compensation payable by the Customers for various
services provided in connection with their accounts. Customers should read this
Prospectus in light of the terms governing their accounts with their Agents.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), on each Business Day. Currently, the
days on which the Federal Reserve Bank of New York is closed (other than
weekends) are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Memorial Day (observed), Independence Day, Labor Day, Columbus Day, Thanksgiving
Day and Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Fund seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of the Funds
are declared daily to shareholders at 3:00 p.m., Eastern time (1:00 p.m.,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund), on the day of declaration. Investor A Shares begin earning
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Investor A
Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Transfer Agent and will become effective
with respect to dividends paid after its receipt. Your dividend election may be
governed by your account agreement with your Selling Agent. Dividends are paid
in cash within five Business Days after a shareholder's complete redemption of
his/her Investor A Shares in a Fund. To the extent that there are any net
short-term capital gains, they will be paid at least annually.
Each Fund's net investment income available for distribution to the holders of
Investor A Shares will be reduced by the amount of sales support and shareholder
servicing fees paid to Selling Agents and Servicing Agents, respectively. Each
Fund's net investment income available for distribution to the holders of
Investor A Shares will be reduced by the amount of retail transfer agency fees
payable to the Transfer Agent applicable to the Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax on amounts
distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an IRA
are generally deferred under the Code.) These distributions will not qualify for
the dividends received deduction for corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends (and capital gains, if applicable) paid during the prior year.
Such dividends (and capital gains) also may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
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Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, Nations Tax Exempt
Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund may be taxable to investors under state or local law even though a
substantial portion of such distribution may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income tax.
If Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. To the extent, if any, dividends paid to
shareholders are derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from Federal income tax and
also may be subject to state and local tax.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets 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. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the related SAI.
Non-mortgage-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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Prime Fund may invest up to 100% of its assets in obligations issued by
banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and eco-
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nomic developments, the obligations may be less marketable than comparable
domestic obligations of domestic issuers, a foreign jurisdiction might impose
withholding taxes on interest income payable on such obligations, deposits may
be seized or nationalized, foreign governmental restrictions such as exchange
controls may be adopted which might adversely affect the payment of principal of
and interest on such obligations, the selection of foreign obligations may be
more difficult because there may be less publicly available information
concerning foreign issuers, there may be difficulties in enforcing a judgment
against a foreign issuer or the accounting, auditing and financial reporting
standards, practices and requirements applicable to foreign issuers may differ
from those applicable to domestic issuers. In addition, foreign banks are not
subject to examination by U.S. Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. Reverse
repurchase agreements may be considered to be borrowings. The Funds may borrow
money from banks for temporary purposes in amounts of up to one-third of their
respective total assets, provided that borrowings in excess of 5% of the value
of the Funds' total assets must be repaid prior to the purchase of portfolio
securities. The Funds are parties to a Line of Credit Agreement with Mellon
Bank, N.A. 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.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, the Funds may use reverse repurchase agreements
for the purpose of investing the proceeds in tri-party repurchase agreements.
Generally, the effect of such a transaction is that a Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Fund of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
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 Fund is 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 Fund's use
of the proceeds of the agreement may be restricted pending a determination by
the other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative
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techniques involving leverage, and are subject to asset coverage requirements if
a Fund does not establish and maintain a segregated account (as described
above). Under the requirements of the 1940 Act, a Fund is required to maintain
an asset coverage (including the proceeds of the borrowings) of at least 300% of
all borrowings. Depending on market conditions, a Fund's asset coverage and
other factors at the time of a reverse repurchase, a Fund may not establish a
segregated account when the Adviser believes it is not in the best interests of
the Fund to do so. In this case, such reverse repurchase agreements will be
considered borrowings subject to the asset coverage described above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instru-
ments consist of short-term U.S. dollar-denominated obligations issued by
domestic corporations or foreign corporations and domestic and foreign
commercial banks. The Nations 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 objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar and non-dollar denominated) of foreign corporations and banks as well as
obligations of foreign governments and their political subdivisions (which will
be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on for-
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eign securities exchanges are generally higher than the negotiated commissions
on U.S. exchanges, and there is generally less government supervision and
regulation of foreign securities exchanges, brokers, and companies than in the
United States. With respect to certain foreign countries, there is a possibility
of expropriation or confiscatory taxation, limitations on the removal of funds
or other assets, or diplomatic developments that could affect investments within
those countries. Because of these and other factors, securities of foreign
companies acquired by a Fund may be subject to greater fluctuation in price than
securities of domestic companies.
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.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but that can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by the Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a Fund with another party of their respective com-
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mitments to pay or receive interest, E.G., an exchange of floating-rate payments
for fixed-rate payments. A Fund will enter into a swap transaction on a net
basis, I.E. the payment obligations of the Fund and the counterparty will be
netted out with the Fund receiving or paying, as the case may be, only the net
amount of the two payment obligations. A Fund will segregate, on a daily basis,
cash or liquid high quality debt securities with a value at least equal to the
Fund's net obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less, or instruments
subject to demand features or resets if the remaining maturity is more than 397
days. Money market instruments may include, among other instruments, certain
U.S. Treasury Obligations, U.S. Government Obligations, bank instruments,
commercial instruments, repurchase agreements and municipal securities. Such
instruments are described in this Appendix A.
MUNICIPAL SECURITIES: 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 instru-
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ments rated "high quality" by any major rating service. 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.
Municipal Securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. 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.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Tax Exempt Fund may invest more than
40% of its portfolio in puts or other securities guaranteed by banks and other
financial institutions. Accordingly, changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price.
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Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable 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.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Gov-
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ernment agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered illiquid if there is no secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally takes place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
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.
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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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. 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 and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
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
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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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
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 two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
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Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest 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.
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".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
37
<PAGE>
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.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
38
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes NATIONS MANAGED INDEX
FUND (the "Fund") of Nations Fund Trust, an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of the Fund -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Fund that a prospective
purchaser of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust is
contained in a separate Statement of Additional
Information (the "SAI") that has been filed with
the Securities and Exchange Commission (the "SEC")
and is available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAI, dated July
31, 1996, is incorporated by reference in its
entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Fund. TradeStreet Investment Associates,
Inc. ("TradeStreet") is sub-investment adviser to
the Fund. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations
Managed
Index Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appeard here)
<PAGE>
Table Of Contents
About The Fund
Prospectus Summary 3
Expenses Summary 4
Objective 5
How Objective Is Pursued 5
How Performance Is Shown 7
How The Fund Is Managed 8
Organization And History 10
About Your Investment
How To Buy Shares 11
How To Redeem Shares 13
How To Exchange Shares 14
Shareholder Servicing And Distribution Plan 15
How The Fund Values Its Shares 16
How Dividends And Distributions are Made; Tax
Information 17
Appendix A -- Portfolio Securities 18
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES: Nations Managed Index Fund's
investment objective is to seek, over the long-term, to provide a total
return which (gross of fees and expenses) exceeds the total return of
the Standard & Poor's 500 Composite Stock Price Index.
(Bullet) When consistent with the Fund's objective, the Fund will
employ various techniques to manage capital gain
distributions.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Fund.
See "How The Fund Is Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Managed Index Fund declares and
pays dividends from net investment income each calendar quarter. The
Fund's net realized capital gains, including net short-term capital
gains, are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. Investments in the Fund are not insured against loss of principal.
Investments by the Fund in common stocks and other equity securities
are subject to stock market risk, which is the risk that the value of
the stocks the Fund holds may decline over short or even extended
periods. Certain of the Fund's permissible investments may constitute
derivative securities. Certain types of derivative securities can,
under certain circumstances, significantly increase an investor's
exposure to market or other risks. For a discussion of these and other
factors, see "How Objective Is Pursued -- Risk Considerations" and
"Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Fund. The
following table summarizes shareholder transaction and operating expenses for
Investor A Shares of the Fund. The Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
SHAREHOLDER TRANSACTION EXPENSES Index Fund
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of the lower of the original purchase price
or redemption proceeds) None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees 0.50%
Rule 12b-1 Fees (including shareholder servicing fees) 0.25%
Other Expenses 0.25%
Total Operating Expenses 1.00%
</TABLE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Index Fund
1 Year $ 10
3 Years $ 32
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Investor A Shares will bear either directly or indirectly. The figures in the
above table are based on estimates for the fiscal year. For a more complete
description of the Fund's operating expenses, see "How The Fund Is Managed." For
a more complete description of the Rule 12b-1 and shareholder servicing fees
payable by the Fund, see "Shareholder Servicing And Distribution Plan."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE>
Objective
Nations Managed Index Fund's investment objective is to seek, over the
long-term, to provide a total return which (gross of fees and expenses) exceeds
the total return of the Standard & Poor's 500 Composite Stock Price Index.
How Objective Is Pursued
NATIONS MANAGED INDEX FUND: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the "Index")1.
The S&P 500 Index is a value weighted index consisting of 500 common stocks
chosen for market size, liquidity and industry group representation.
The Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 500 Index while
minimizing the downside risk of underperforming the index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index. The
Adviser ranks the attractiveness of each security according to a multifactor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration view a stock relative to others in the same industry. Each stock is
assigned a ranking from 1 to 10 (best to worst). The Adviser then screens out
the lower rated stocks resulting in a portfolio of 300 to 350 holdings that
capture the investment characteristics of the Index.
In addition, when consistent with the Fund's investment objective, the Fund will
employ various techniques to manage capital gain distributions. These techniques
include utilizing a share identification methodology whereby the Fund will
specifically identify each lot of shares of portfolio securities that it holds,
which will allow the Fund to sell first those specific shares with the highest
tax basis in order to reduce the amount of recognized capital gains as compared
with a sale of identical portfolio securities, if any, with a lower tax basis.
The Fund will sell first those shares with the highest tax basis only when it is
in the best interest of the Fund to do so, and reserves the right to sell other
shares when appropriate. In addition, the Fund may, at times, sell portfolio
securities in order to realize capital losses. Such capital losses would be used
to offset realized capital gains thereby reducing capital gain distributions.
Additionally, the Adviser will, consistent with the multi-factor valuation model
discussed above, employ a low portfolio turnover strategy designed to defer the
realization of capital gains.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event at least 65% of its total
assets, in common stocks which are included in the S&P 500 Index. The Fund is
expected, however, to maintain a position in high-quality short-term debt
securities and money market instruments to meet redemption requests. If the
Adviser believes that market conditions warrant a temporary defensive posture,
the Fund may invest without limitation in high-quality short-term debt
securities and money market instruments. These securities and money market
instruments may include domestic and foreign commercial paper, certificates of
deposit, bankers' acceptances and time deposits, U.S. Government securities and
repurchase agreements.
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
5
<PAGE>
The 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 Commodity Futures
Trading Commission ("CFTC") and options thereon for market exposure risk
management. The Fund may lend its portfolio securities to qualified
institutional investors. The Fund also may invest in restricted, private
placement and other illiquid securities. In addition, the Fund may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied, on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market performance. S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein.
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate for the Fund will not exceed 25%.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of the Fund, there is no assurance that it will be able to do so. No
single fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in the Fund are not insured against loss
of principal.
Investments by the Fund in common stocks and other equity securities are subject
to stock market risk. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Fund's permissible investments may 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 the Fund's investment objective and do not unduly
increase the Fund's exposure to market or other risks. For additional risk
information regarding the Fund's investments in particular instruments, see
"Appendix A -- Portfolio Securities."
The techniques employed by the Adviser to seek to manage capital gain
distributions will generally only have the effect of deferring the realization
of capital gains. For example, to the extent that the capital gains recognized
on a sale of portfolio securities arise from the sale of specifically-identified
securities with higher tax bases, subsequent sales of the same portfolio
securities will be calculated by reference to the lower tax basis securities
that remain in the portfolio. Under this scenario, an investor who purchases
shares of the Fund after the first sale could receive capital gain distributions
that are higher than the distributions that would have been received if this
methodology had not been used. Therefore, certain investors actually could be
disadvantaged by the techniques employed by the Fund to seek to manage capital
gain distributions, depending on the timing of their purchase of Fund shares.
Even if there are no subsequent sales, upon a redemption or exchange of Fund
shares an investor will have to recognize gain to the extent that the net asset
value of Fund shares at such time exceeds such investor's tax basis in his or
her Fund shares. As a result, the taxable gain realized by an investor upon a
redemption or exchange may be greater (or the loss realized at such time may be
less) than
oth-
<PAGE>
erwise would have been realized. The Fund's low portfolio turnover strategy will
have the same effect.
The various techniques employed by the Fund to manage capital gain distributions
may result in the accumulation of substantial unrealized gains in the Fund's
portfolio. Moreover, the realization of capital gains is not entirely within the
Fund's control because it is at least partly dependent on shareholder purchase
and redemption activity. Capital gain distributions may vary considerably from
year-to-year.
INVESTMENT LIMITATIONS: The Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities are
not considered members of any industry.)
2. Make loans, except that the Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of the Fund's assets, the Fund will not hold
more than 10% of the voting securities of any issuer.
The investment objective and policies of the Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of the Fund change, shareholders should consider whether
the Fund remains an appropriate investment in light of their then current
position and needs.
In order to register the Fund's shares for sale in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should the Fund determine that any
such commitment is no longer in the best interest of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Fund may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Fund may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of the Fund (as stated in the advertisement)
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment, assuming the reinvestment of
all dividend and capital gain distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods.
7
<PAGE>
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of the Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing the Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Fund with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Fund offers Primary A, Primary B and
Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees and other expenses, which may cause the performance
of a class to differ from the performance of the other classes. Total return and
yield quotations will be computed separately for each class of the Fund's
shares. Any fees charged by a selling agent and/or servicing agent directly to
its customers' accounts in connection with investments in the Fund will not be
included in calculations of total return or yield. The Fund's annual report
contains additional performance information and is available upon request
without charge from the Fund's distributor or your selling agent.
How The Fund Is Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Board of Trustees. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Fund. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Fund. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and in accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, the Fund may invest in
8
<PAGE>
securities of companies with which NationsBank has a lending relationship. For
the services provided and expenses assumed pursuant to an Investment Advisory
Agreement, NBAI is entitled to receive an advisory fee, computed daily and paid
monthly, at the annual rate of 0.50% of the average daily net assets of the
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund.
For the services provided and the expenses assumed pursuant to a Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.10% of the average daily net assets of the
Fund.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund and Nations
Managed Index Fund. He has been Portfolio Manager for Nations Managed Index Fund
since its inception. Prior to assuming his position with TradeStreet, he was
Vice President and Structured Products Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1990. His
past experience includes portfolio management, derivatives management and
quantitative analysis for the Investment Management Group at NationsBank and
Sovran Bank of Tennessee. Mr. Golden received a B.B.A. in Finance from Belmont
University. He is a Chartered Financial Analyst candidate and a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, 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.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Fund, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Fund.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Fund including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Fund, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Fund.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of the Fund's average daily net assets.
9
<PAGE>
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Fund's administrative operations. For
providing such services NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Fund's average daily net
assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Fund. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares of the Fund. See "Shareholder Servicing And
Distribution Plan."
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the Fund.
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of the Fund, (ii) $10.00 per repurchase collateral transaction
by the Fund, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Fund.
First Data serves as transfer agent (the "Transfer Agent") for the Fund's
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. The Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
Trustees' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor A Shares bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
Organization And History
The Fund is a member of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently consists of more than
43 distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Fund currently
offers four classes of shares -- Primary A Shares, Primary B Shares, Investor A
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Shares and Investor C Shares. This Prospectus relates only to the Investor A
Shares of Nations Managed Index Fund. To obtain additional information regarding
the Fund's other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
certain classes and series of Nations Fund Trust and therefore could be
considered to be a controlling person of these classes and series for purposes
of the 1940 Act. For more detailed information concerning the percentage of each
class or series of shares over which NationsBank and its affiliates possessed or
shared power to dispose or vote as of a certain date, see Nations Fund Trust's
SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
About Your Investment
How To Buy Shares
The Fund has established various procedures for purchasing Investor A Shares in
order to accommodate different investors. Purchase orders for Investor A Shares
may be placed directly with the Fund, through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank) that have
entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and a sales support agreement ("Sales Support
Agreement") with Stephens ("Selling Agents"). Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents."
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclo-
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sure Statement for more information regarding the Account, including information
regarding the fees and expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Fund, except that the
minimum initial investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Fund, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH THE FUND: Investors may open a regular
(non-retirement) account directly with the Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services (1-800-982-2271) for an account
number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund with a
reinvestment slip to the address set forth above. To purchase additional shares
by wire, follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares in the Fund
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Fund's Custodian. Such payment must be received no later than 4:00 p.m., Eastern
time, by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not
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received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Fund's Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent or Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with the Fund,
redemption orders should be communicated to the Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by the Fund. For shareholders who purchased
their shares through an Agent, redemption orders should be transmitted by
telephone or in writing through the same Agent. Redemption proceeds are normally
wired to the redeeming Agent within three Business Days after receipt of the
order by Stephens or by the Transfer Agent. Redemption orders are effected at
the net asset value per share next determined after receipt of the order by the
Fund, Stephens, or the Transfer Agent, as the case may be. The Agents are
responsible for transmitting redemption orders to Stephens or to the Transfer
Agent and for crediting their Customer's account with the redemption proceeds on
a timely basis. Redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately. No charge for wiring redemption payments is imposed by Nations
Fund. There is no redemption charge.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Fund involuntarily or make payment for redemption in
readily marketable
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securities or other property under certain circumstances in accordance with the
1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Fund if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings account
in a stated amount of not less than $25 on or about the 10th or 25th day of the
applicable month of withdrawal. Investor A Shares will be redeemed as necessary
to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. And, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange
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<PAGE>
request. Only shares that may legally be sold in the state of the shareholder's
residence may be acquired in an exchange. Only shares of a class that is
accepting investments generally may be acquired in an exchange. During periods
of significant economic or market change, telephone exchanges may be difficult
to complete. In such event, investors should consider communicating their
exchange requests by mail.
Investor A Shares of the Fund are offered without any Contingent Deferred Sales
Charge ("CDSC"). However, Investor A Shares of other funds within the Nations
Fund Family may have been sold subject to a CDSC. If a shareholder exchanges any
such shares (the "Exchanged Shares") for Investor A Shares of the Fund, the
shares of the Fund will be subject to the CDSC. The holding period of such
Investor A Shares (for purposes of determining whether a CDSC is applicable upon
redemption) will be computed from the time of the original purchase of the
Exchanged Shares (or, if the Exchanged Shares were acquired in an exchange, from
the time of the original purchase of Investor A Shares).
AUTOMATIC EXCHANGE FEATURE: Under the Fund's Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. Shareholders may direct proceeds to be exchanged from one Nations Fund to
another as allowed by the applicable exchange rules within the Prospectus.
Exchanges will occur on or about the 15th and/or 30th day of the applicable
month. The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, a
shareholder should contact his/her Selling Agent or Investor Services.
Shareholder Servicing And Distribution
Plan
The Fund's Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits the Fund to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Fund, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Fund
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of
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<PAGE>
organizing and conducting sales seminars, printing prospectuses and statements
of additional information (and supplements thereto) and reports for other than
existing shareholders, preparation and distribution of advertising and sales
literature and the costs of administering the Investor A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Fund
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan. Any such additional
consideration or incentive program may be terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Fund
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreement and Sales Support
Agreement. See the SAI for more details on the Investor A Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreement and Servicing Agreement require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How The Fund Values Its Shares
The Fund calculates the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Even though the Fund seeks to manage taxable
distributions, the Fund may be expected to earn and distribute taxable income
and may also be expected to realize and distribute capital gains from time to
time. Dividends from net investment income are declared and paid each calendar
quarter by the Fund. The Fund's net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Investor A Shares of the Fund are eligible to receive dividends when declared,
provided however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor A Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor A Shares.
TAX INFORMATION: The Fund intends to qualify as a "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves the Fund of liability for Federal income tax on amounts
distributed in accordance with the Code.
The Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Fund of its net investment income and the excess, if any, of its net short-term
capital gain over its net long-term capital loss are taxable as ordinary income
to shareholders who are not currently exempt from Federal income tax, whether
such income is received in cash or reinvested in additional shares.
Corporate investors in the Fund may be entitled to the dividends received
deduction on all or a portion of the Fund's dividends.
Substantially all of the Fund's net realized long-term capital gains will be
distributed at least annually. The Fund will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Fund's shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number or has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the
share-
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<PAGE>
holder's Federal tax liability, and a refund may be obtained from the Internal
Revenue Service if withholding results in overpayment of taxes. Federal law also
requires the Fund to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Fund and its
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How Objective Is Pursued" section of the Prospectus
identifies the Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
BORROWINGS: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Fund may
borrow money from banks for temporary purposes in amounts of up to one-third of
its total assets, provided that borrowings in excess of 5% of the value of the
Fund's total assets must be repaid prior to the purchase of portfolio
securities. Under the requirements of the 1940 Act, the Fund is required to
maintain an asset coverage (including the proceeds of the borrowings) of at
least 300% of all borrowings.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objective. In addition, the Fund 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 the Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: The Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FOREIGN CURRENCY TRANSACTIONS: The Fund may enter into foreign currency exchange
transactions to convert foreign currencies to and from the U.S. dollar. The Fund
either enters into these transactions on a spot (I.E., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or uses forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract is an obligation by the Fund to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract.
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<PAGE>
Foreign currency hedging transactions are an attempt to protect the 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. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Fund may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect the Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options) and options on foreign
currencies, and investing in futures contracts for the purchase or sale of
instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, the Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. The Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 15% of the value of its net assets in securities that are illiquid or such
lower percentage as may be required by the states in which the Fund sells its
shares. Repurchase agreements, time deposits and guaranteed investment contracts
that do not provide for payment to the Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, the Fund may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A and Section 4(2) under the 1933 Act. Any
such security will not be considered illiquid so long as it is determined by the
Fund's Board of Trustees or the Adviser, acting under guidelines approved and
monitored by the Fund's Board, after considering trading activity, availability
of reliable price information and other relevant information, that an adequate
trading market exists for that security. To the extent that, for a period of
time, qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A and Section 4(2), the level of illiquidity of a Fund
holding such securities may increase during such period.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
19
<PAGE>
OTHER INVESTMENT COMPANIES: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the 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 the Fund bears directly in connection with its
own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into repurchase agreements jointly with other
investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 30% of the
value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Fund may purchase
and sell futures contracts and related options with respect to non-U.S. stock
indices, non-U.S. interest rates and foreign currencies, that have been approved
by the CFTC for investment by U.S. investors, for the purpose of hedging against
changes in values of the Fund's securities or changes in the prevailing levels
of interest rates or currency exchange rates. The contracts entail certain
risks, including but not limited to the following: no assurance that futures
contracts transactions can be offset at favorable prices; possible reduction of
the Fund's total return due to the use of hedging; possible lack of liquidity
due to daily limits on price fluctuation; imperfect correlation between the
contracts and the securities or currencies being hedged; and potential losses in
excess of the amount invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless the Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that the
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not
20
<PAGE>
debts of the U.S. Treasury, in some cases payment of interest and principal on
such obligations is guaranteed by the U.S. Government, E.G., Government National
Mortgage Association certificates; in other cases interest and principal are not
guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law. The market value of U.S. Government
obligations may fluctuate due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
21
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND AND NATIONS DISCIPLINED EQUITY FUND
(the "Funds") of Nations Fund Trust and Nations
Fund, Inc., each an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the
Funds -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Balanced Assets
Fund
GROWTH FUNDS:
Nations Capital Growth Fund
Nations Emerging Growth
Fund
Nations Disciplined Equity
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 12
How Objectives Are Pursued 13
How Performance Is Shown 19
How The Funds Are Managed 20
Organization And History 24
About Your Investment
How To Buy Shares 26
How To Redeem Shares 27
How To Exchange Shares 29
Shareholder Servicing And Distribution Plans 30
How The Funds Value Their Shares 31
How Dividends And Distributions Are Made;
Tax Information 32
Appendix A -- Portfolio Securities 33
Appendix B -- Description Of Ratings 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUNDS' SAIS INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
3
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations Balanced Assets Fund's investment objective is to
seek total return by investing in equity and fixed income
securities.
(Bullet) Nations Capital Growth Fund's investment objective is to seek
growth of capital by investing in companies that are
believed to have superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment objective is to seek
capital appreciation by investing in emerging growth companies
that are believed to have superior long-term earnings growth
prospects.
(Bullet) Nations Disciplined Equity Fund's investment obective is to
seek growth of capital by investing in companies that
are expected to produce significant increases in earnings per
share.
(Bullet) INVESTMENT ADVISER: NBAI serves as the investment adviser to the Funds.
NationsBanc Advisors, Inc. provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare and pay dividends from
net investment income each calendar quarter. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities are subject to interest rate
risk, which is the risk that increases in market interest rates will
adversely affect a Fund's investments in debt securities. The value of
a Fund's investments in debt securities 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 which are not backed by the United States
Government are subject to credit risk, which is the risk that the
issuer may not be able to pay principal and/or interest when due.
Certain of the Funds' investments constitute derivative securities.
Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discussion of these and other factors, see "How
Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Value Equity Balanced Capital Emerging
Fund Income Fund Assets Fund Growth Fund Growth Fund
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None None None None None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees .75% .70% .75% .75% .75%
Rule 12b-1 Fees (including
shareholder servicing fees) .25% .25% .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .21% .20% .25% .21% .24%
Total Operating Expenses (After
Expense Reimbursements) 1.21% 1.15% 1.25% 1.21% 1.24%
</TABLE>
<TABLE>
<CAPTION>
Nations
Disciplined
Equity Fund
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees .75%
Rule 12b-1 Fees (including
shareholder servicing fees) .25%
Other Expenses (After Expense
Reimbursements) .27%
Total Operating Expenses (After
Expense Reimbursements) 1.27%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
5
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Equity Balanced Capital Growth Emerging Growth
Value Fund Income Fund Assets Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 12 $ 12 $ 13 $ 12 $ 13
3 Years $ 38 $ 37 $ 40 $ 38 $ 39
5 Years $ 66 $ 63 $ 69 $ 66 $ 68
10 Years $ 147 $ 140 $ 151 $ 147 $ 150
</TABLE>
<TABLE>
<CAPTION>
Nations
Disciplined
Equity Fund
<S> <C>
1 Year $ 13
3 Years $ 40
5 Years $ 70
10 Years $ 153
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares of the Funds will bear either directly or indirectly. The
figures in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed." For a more complete description of
the Rule 12b-1 and shareholder servicing fees payable by the Funds, see
"Shareholder Servicing And Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 16.21 $ 12.98 $ 13.72 $ 12.45 $ 11.16 $ 9.71
Net investment income 0.05 0.23 0.20 0.22 0.26 0.34
Net realized and unrealized
gain/(loss) on investments 1.06 3.92 (0.20) 1.35 1.59 1.47
Net increase/(decrease) in net
asset value from operations 1.11 4.15 0.00 1.57 1.85 1.81
Distributions:
Dividends from net investment
income (0.10) (0.25) (0.20) (0.21) (0.27) (0.36)
Distributions from net realized
capital gains (0.62) (0.67) (0.54) (0.09) (0.29) --
Total dividends and
distributions (0.72) (0.92) (0.74) (0.30) (0.56) (0.36)
Net asset value, end of period $ 16.60 $ 16.21 $ 12.98 $ 13.72 $ 12.45 $ 11.16
Total return++ 7.07% 34.22% (0.17)% 12.80% 16.96%+++ 18.79%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 54,341 $ 48,440 $ 35,445 $ 32,607 $ 24,536 $ 13,514
Ratio of operating expenses to
average net assets 1.21%+ 1.19% 1.18% 1.21% 1.06% 0.53%
Ratio of net investment income
to average net assets 1.05%+ 1.65% 1.60% 1.73% 2.15% 3.33%
Portfolio turnover rate 12% 63% 75% 64% 60% 51%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.21%+ 1.19% 1.18% 1.22% 1.15% 0.99%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.05 $ 0.23 $ 0.21 $ 0.22 $ 0.25 $ 0.30
Average commission rate paid (b) $ 0.0648 N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/90*
<S> <C>
Operating performance:
Net asset value, beginning of
period $ 10.04
Net investment income 0.35
Net realized and unrealized
gain/(loss) on investments (0.36)
Net increase/(decrease) in net
asset value from operations (0.01)
Distributions:
Dividends from net investment
income (0.32)
Distributions from net realized
capital gains --
Total dividends and
distributions (0.32)
Net asset value, end of period $ 9.71
Total return++ (0.16)%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 7,020
Ratio of operating expenses to
average net assets 0.21%+
Ratio of net investment income
to average net assets 4.19%+
Portfolio turnover rate 24%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.11%+
Net investment income per share
without waivers and/or expense
reimbursements $ 0.26
Average commission rate paid (b) N/A
</TABLE>
* Nations Value Fund Investor A Shares commenced operations on December 6,
1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96 (a) 05/31/95 05/31/94 05/31/93 05/31/92
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 11.78 $ 11.41 $ 12.02 $ 11.40 $ 10.19
Net investment income 0.27 0.40 0.37 0.34 0.29
Net realized and
unrealized gain on
investments 1.77 1.10 0.21 1.05 1.27
Net increase in net
asset value from
operations 2.04 1.50 0.58 1.39 1.56
Distributions:
Dividends from net
investment income (0.34) (0.40) (0.38) (0.32) (0.28)
Distributions from net
realized capital gains (0.37) (0.73) (0.81) (0.45) (0.07)
Total dividends and
distributions (0.71) (1.13) (1.19) (0.77) (0.35)
Net asset value, end of
period $ 13.11 $ 11.78 $ 11.41 $ 12.02 $ 11.40
Total return++ 17.75% 14.53% 4.74% 12.78% 15.59%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 42,606 $ 35,538 $ 33,691 $ 32,760 $ 3,418
Ratio of operating
expenses to average
net assets 1.15%+ 1.17% 1.19% 1.17% 1.35%
Ratio of net investment
income to average net
assets 2.59%+ 3.50% 3.16% 3.12% 2.90%
Portfolio turnover rate 59% 158% 116% 55% 84%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 1.15%+ 1.18%+ 1.20% 1.29% 2.46%
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.27 $ 0.40 $ 0.37 $ 0.33 $ 0.18
Average commission rate
paid (b) $ 0.0287 N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
<S> <C>
Operating performance:
Net asset value,
beginning of period $ 10.04
Net investment income 0.05
Net realized and
unrealized gain on
investments 0.10
Net increase in net
asset value from
operations 0.15
Distributions:
Dividends from net
investment income --
Distributions from net
realized capital gains --
Total dividends and
distributions --
Net asset value, end of
period $ 10.19
Total return++ 1.49%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 497
Ratio of operating
expenses to average
net assets 1.37%+
Ratio of net investment
income to average net
assets 3.40%+
Portfolio turnover rate 9%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 15.09%+
Net investment income
per share without
waivers and/or expense
reimbursements $ (1.30)
Average commission rate
paid (b) N/A
</TABLE>
* Nations Equity Income Fund Investor A Shares commenced operations on April
16, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
8
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.66 $ 10.42 $ 10.86 $ 10.24
Net investment income 0.11 0.34 0.22 0.29
Net realized and unrealized gain/(loss) on
investments 0.45 2.23 (0.44) 0.62
Net increase/(decrease) in net asset value from
operations 0.56 2.57 (0.22) 0.91
Distributions:
Dividends from net investment income (0.17) (0.31) (0.22) (0.29)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.58) (0.33) (0.22) (0.29)
Net asset value, end of period $ 11.64 $ 12.66 $ 10.42 $ 10.86
Total return++ 4.86% 25.01% (2.02)% 8.93%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,261 $ 5,276 $ 4,881 $ 5,191
Ratio of operating expenses to average net
assets 1.25%+ 1.24% 1.23% 1.15%
Ratio of net investment income to average net
assets 2.66%+ 3.00% 2.06% 2.57%
Portfolio turnover rate 83% 174% 156% 50%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.25%+ 1.24% 1.24% 1.22%
Net investment income per share without waivers
and/or expense reimbursements $ 0.11 $ 0.34 $ 0.22 $ 0.28
Average commission rate paid (b) $ 0.0598 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.01
Net realized and unrealized gain/(loss) on
investments 0.23#
Net increase/(decrease) in net asset value from
operations 0.24
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.24
Total return++ 2.40%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 547
Ratio of operating expenses to average net
assets 0.55%+
Ratio of net investment income to average net
assets 3.60%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.30%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.01
Average commission rate paid (b) N/A
</TABLE>
* Nations Balanced Assets Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
9
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.22 $ 11.21 $ 11.06 $ 10.67
Net investment income/(loss) 0.01 0.06 0.07 0.07
Net realized and unrealized gain on investments 0.38 3.28 0.14 0.41
Net increase in net asset value from operations 0.39 3.34 0.21 0.48
Distributions:
Dividends from net investment income (0.01) (0.07) (0.06) (0.08)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (1.20) (0.33) (0.06) (0.09)
Net asset value, end of period $ 13.41 $ 14.22 $ 11.21 $ 11.06
Total return++ 3.02% 30.70% 1.93% 4.56%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18,311 $ 16,770 $ 11,038 $ 11,182
Ratio of operating expenses to average net
assets 1.21%+ 1.23% 1.15% 1.05%
Ratio of net investment income/(loss) to
average net assets 0.13%+ 0.46% 0.60% 0.59%
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.21%+ 1.23% 1.16% 1.14%
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.01 $ 0.06 $ 0.07 $ 0.06
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) 0.01
Net realized and unrealized gain on investments 0.66#
Net increase in net asset value from operations 0.67
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.67
Total return++ 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,225
Ratio of operating expenses to average net
assets 0.55%+
Ratio of net investment income/(loss) to
average net assets 1.08%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.30%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.00(b)
Average commission rate paid (c) N/A
</TABLE>
* Nations Capital Growth Fund Investor A Shares commenced operations on October
2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
10
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96#(a) 11/30/95 11/30/94#
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.17 $ 11.35 $ 10.85
Net investment income/(loss) (0.01) (0.01) (0.06)
Net realized and unrealized gain on investments 1.25 3.23 0.70
Net increase in net asset value from operations 1.24 3.22 0.64
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14)
Total dividends and distributions (1.50) (0.40) (0.14)
Net asset value, end of period $ 13.91 $ 14.17 $ 11.35
Total return++ 9.80% 29.65% 5.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,802 $ 5,765 $ 3,234
Ratio of operating expenses to average net assets 1.24%+ 1.23% 1.26%
Ratio of net investment income/(loss) to average net assets (0.31)%+ (0.17)% (0.54)%
Portfolio turnover rate 39% 139% 129%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursement 1.24%+ 1.23% 1.26%
Net investment income/(loss) per share without waivers
and/or expense reimbursement $ (0.01) $ (0.01) $ (0.05)
Average commission rate paid (b) $ 0.0599 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.87
Net investment income/(loss) (0.03)
Net realized and unrealized gain on investments 1.02
Net increase in net asset value from operations 0.99
Distributions:
Distributions from net realized capital gains (0.01)
Total dividends and distributions (0.01)
Net asset value, end of period $ 10.85
Total return++ 9.99%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,095
Ratio of operating expenses to average net assets 1.05%+
Ratio of net investment income/(loss) to average net assets (0.40)%+
Portfolio turnover rate 159%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursement 1.26%+
Net investment income/(loss) per share without waivers
and/or expense reimbursement $ (0.04)
Average commission rate paid (b) N/A
</TABLE>
* Nations Emerging Growth Fund Investor A Shares commenced operations on
December 10, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
11
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 17.04 $ 13.06 $ 13.30
Net investment income/(loss) 0.04 0.09 0.00(b)
Net realized and unrealized gain/(loss) on investments 0.35 3.96 (0.23)#
Net increase/(decrease) in net asset value from operations 0.39 4.05 (0.23)
Distributions:
Dividends from net investment income (0.04) (0.07) (0.01)
Distributions from net realized capital gains (0.23) -- --
Return of capital -- -- (0.00)(b)
Total dividends and distributions: (0.27) (0.07) (0.01)
Net asset value, end of period $ 17.16 $ 17.04 $ 13.06
Total return++ 2.35% 31.05% (1.71)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,722 $ 3,234 $ 252
Ratio of operating expenses to average net assets 1.12%+ 1.40% 1.23%+
Ratio of net investment income/(loss) to average net assets 0.72%+ 0.75% 0.02%+
Portfolio turnover rate 47% 124% 177%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.12%+ 1.40% 1.66%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ 0.04 $ 0.09 $ (0.07)
Average commission rate paid (c) $ 0.0627 N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 04/29/94*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 14.94
Net investment income/(loss) (0.04)
Net realized and unrealized gain/(loss) on investments 1.35
Net increase/(decrease) in net asset value from operations 1.31
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains (2.95)
Return of capital --
Total dividends and distributions: (2.95)
Net asset value, end of period $ 13.30
Total return++ 8.31%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 165
Ratio of operating expenses to average net assets 1.30%+
Ratio of net investment income/(loss) to average net assets (0.62)%+
Portfolio turnover rate 475%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.74%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.07)
Average commission rate paid (c) N/A
</TABLE>
* The period for Nations Disciplined Equity Investor A Shares reflects
operations from April 30, 1994 through November 30, 1994. The financial
information for the fiscal periods through April 29, 1994 is based on the
financial information for The Capitol Mutual Funds Special Equity Portfolio
Class B Shares, which were reorganized into Investor A Shares of Nations
Disciplined Equity Fund (then named Nations Special Equity Fund) as of the
close of business on April 29, 1994. The Capitol Mutual Funds Special Equity
Portfolio Class B Shares commenced operations on July 26, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
12
<PAGE>
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower price-to-
earnings ratios are more likely to provide better opportunities for capital
appreciation. This "value" approach generally produces a dividend yield greater
than the market average. The Adviser will attempt to temper risk by broad
diversification among economic sectors and industries. Through this strategy,
the Fund pursues above-average returns while seeking to avoid above-average
risks.
The Fund invests under normal market conditions at least 65% of its total assets
in common stocks. In addition to common stocks, the Fund also may invest in
preferred stocks, securities convertible into common stock, and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in obligations issued or guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade
securities of domestic companies. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by
Moody's Investors Service, Inc. ("Moody's")) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by the 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
13
<PAGE>
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.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (i.e., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories (E.G., rated "BBB" by
S&P) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (E.G. rated "BB" by S&P), or if not rated,
are of equivalent investment quality as determined by the Adviser. Non-
investment grade debt securities are sometimes referred to as "high yield bonds"
or "junk bonds." They tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest up to 20%
of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant.
14
<PAGE>
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset classes in which the Fund
principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as mortgage-backed securities.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"),
or Thomson BankWatch, Inc. ("BankWatch") or, if unrated, determined by the
Adviser to be comparable in quality to instruments so rated. Obligations with
the lowest investment grade rating (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations. Subsequent to its
purchase by the 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.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above-average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
15
<PAGE>
In addition, the Fund's investment program enables it to invest in the following
types of companies:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Through intensive research, visits to many companies each year, and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above-average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities.
16
<PAGE>
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Fund seeks to provide investors with long-term
capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by a nationally recognized statistical
rating organization or, if not rated, are of equivalent quality as determined by
the Adviser). Obligations rated in the lowest of the top four investment grade
rating categories have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments and
money market instruments.
GENERAL: Each Fund 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 ( the "CFTC") and options thereon for
market exposure risk management. Nations Balanced Assets Fund also may engage in
dollar roll transactions. Each Fund may lend its portfolio securities to
qualified institutional investors. Each Fund also may invest in restricted,
private placement and other illiquid securities and securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. Each Fund may invest in real estate investment trust securities. For
more information concerning these and other instruments in which the Funds may
invest and their investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. For the Funds' port-
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folio turnover rate, see "Financial Highlights." If a Fund's annual portfolio
turnover rate exceeds 100%, it may result in higher costs to the Fund, including
brokerage commissions or dealer markups and other transaction costs on the sale
of securities and the reinvestment in other securities. Portfolio turnover also
can generate short-term capital gains tax consequences.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
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 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.
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 Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider
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whether the Fund remains an appropriate investment in light of their then
current position and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of a Fund (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment (reflecting the deduction of any
applicable contingent deferred sales charge ("CDSC")), assuming the reinvestment
of all dividend and capital gains distributions. Aggregate total return reflects
the total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
C and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected.
Any fees charged by a selling agent and/or servicing agent directly to its
customers' accounts in connection with investments in the Funds will not be
included in calculations of total return or yield. Each Fund's annual report
contains additional performance information and is available upon request
without charge from the Funds' distributor or an investor's selling agent.
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How The Funds Are Managed
The business and affairs of Nations Fund Trust and Nations Fund, Inc. are
managed under the direction of their Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
the Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.75% of the average daily net assets of each
of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
and 0.75% of the first $100 million of Nations Equity Income Fund's average
daily net assets, plus 0.70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus 0.60% of the Fund's average daily net
assets in excess of $250 million.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of Nations Value Fund's, Nations Balanced
Assets Fund's, Nations Capital Growth Fund's, Nations Emerging Growth Fund's and
Nations Disciplined Equity Fund's average daily net assets; and 0.20% of Nations
Equity Income Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund. In addition, the Adviser may from time to time
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compensate Agents, as defined below, for providing certain services to
Customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations Emerging
Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations Balanced
Assets Fund -- 0.25%; and Nations Equity Income Fund -- 0.20%.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been Portfolio
Manager for Nations Value Fund since 1989. Prior to assuming her position with
TradeStreet, she was Senior Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. Ms. Herrmann has worked for the
Investment Management Group at NationsBank since 1981 where her responsibilities
included fund management and institutional portfolio management. She attended
Virginia Wesleyan College. Ms. Herrmann holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the investment community since 1981. His past
experience includes portfolio management, equity research and financial analysis
for the Investment Management Group at NationsBank and Duke Power Company. Mr.
Sanders received a B.A. in Economics from the University of Michigan and an
M.B.A. from University of North Carolina at Charlotte. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and
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National City Bank. Ms. Hale received a B.S. in Business and Finance from Mount
St. Mary's College and an M.B.A. from Kent State University. She holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the North Carolina Society of
Security Analysts, Inc. She is also a member of the National Association for
Petroleum Investment Analysts and the World Affairs Council of Washington, D.C.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been Portfolio Manager for Nations Emerging Growth
Fund since 1992. Prior to assuming his position with TradeStreet, he was Senior
Vice President and Senior Portfolio Manager for the Investment Management Group
at NationsBank. He has worked in the investment community since 1968. His past
experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been Portfolio Manager for Nations Disciplined Equity Fund since
1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and is Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
He has worked in the investment community since 1980. His past experience
includes fund analysis and portfolio management for National Bank of Detroit.
Mr. Williams received a B.S. in Accounting from East Carolina University, Summa
Cum Laude and an M.B.A. from Indiana University. He holds the Chartered
Financial Analyst designation, is on the Advisory Board of Indiana University's
Investment Management Academy, and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank, that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements 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 federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, could prevent such entities from continuing to perform,
in whole or in part, such services. If any such entity were prohibited from
performing any of such services, it is expected that new agreements would be
proposed or entered into with another entity or entities qualified to perform
such services.
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OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of the Funds, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the indicated rate of the
following Funds' average daily net assets: Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund, and
Nations Balanced Assets Fund -- 0.10%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Equity Income Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of each Fund. NationsBank of Texas is located at 1401
Elm Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Inves-
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tor A Shares, are deducted from accrued income before dividends are declared.
The Funds' expenses include, but are not limited to: fees paid to the Adviser,
NationsBank, Stephens and First Data; interest; trustees' and directors' fees;
federal and state securities registration and qualification fees; brokerage fees
and commissions; cost of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the
Custodians and Transfer Agent; certain insurance premiums; outside auditing and
legal expenses; costs of shareholder reports and shareholder meetings, other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Investor A Shares may bear certain class specific retail
transfer agency expenses and also bear certain additional shareholder service
and/or sales support costs. Any general expenses of Nations Fund Trust and/or
Nations Fund, Inc. that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust and Nations Fund, Inc. or in such other manner as the relevant Board of
Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. This Prospectus relates only to
the Investor A Shares of Nations Capital Growth Fund, Nations Emerging Growth
Fund, Nations Disciplined Equity Fund, Nations Value Fund and Nations Balanced
Assets Fund of Nations Fund Trust. To obtain additional information regarding
the Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates pos-
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sessed or shared power to dispose or vote as of a certain date, see Nations Fund
Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor A Shares of Nations Equity Income Fund of Nations Fund, Inc. To obtain
additional information regarding the Fund's other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
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About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor A Shares
in order to accommodate different investors. Purchase orders for Investor A
Shares may be placed directly with a Fund or through banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agents and
Selling Agents are sometimes referred to hereafter as "Agents".
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI, (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI, to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH A FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services for an account number and use
the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
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ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund with a
reinvestment slip to the address set forth above. To purchase additional shares
by wire, follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent or Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by the Fund. For shareholders who purchased
their
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shares through an Agent, redemption orders should be transmitted by telephone or
in writing through the same Agent. Redemption proceeds are normally wired to the
redeeming Agent within three Business Days after receipt of the order by
Stephens or by the Transfer Agent. Redemption orders are effected at the net
asset value per share next determined after receipt of the order by the Fund,
Stephens, or the Transfer Agent, as the case may be. The Agents are responsible
for transmitting redemption orders to Stephens or to the Transfer Agent and for
crediting their Customer's account with the redemption proceeds on a timely
basis. Redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately. No
charge for wiring redemption payments is imposed by Nations Fund. There is no
redemption charge.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that were purchased prior to January 1, 1996 in
amounts of $1 million or more or through the Nations Fund Personal Investment
Planner may be subject to a CDSC equal to 1.00% of the lesser of the net asset
value or the purchase price of the shares being redeemed if such shares are
redeemed within one year of purchase, declining to 0.50% in the second year
after purchase and eliminated thereafter. No CDSC is imposed on increases in net
asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor A shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor A Shares in the account.
Shareholders are respon-
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sible for providing evidence sufficient to establish that they are eligible for
any waiver of the CDSC.
Within 120 days after a redemption of Investor A Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor A Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor A Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor A Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor A Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on
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which the shareholder may realize a capital gain or loss. And, the ability to
deduct capital losses on an exchange may be limited in situations where there is
an exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in the state of the shareholder's residence may
be acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. In such
event, shareholders should consider communicating their exchange requests by
mail.
If Investor A Shares of the Funds purchased prior to January 1, 1996 are
exchanged for shares of the same class of another fund, any CDSC applicable to
the original shares purchased will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of a Fund.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both Funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, a shareholder should contact his/her Selling Agent or Investor
Services.
Shareholder Servicing And
Distribution Plans
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits the Funds to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Funds, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor A Shares of the Funds.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Funds
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
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<PAGE>
advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan or upon receipt of a CDSC.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAIs for more details on the Investor A Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Investor A Shares of the
Funds are eligible to receive dividends when declared, provided, however, that
the purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
Distributions paid by the Funds with respect to one class of shares may be
greater or less than those paid with respect to another class of shares due to
the different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor A Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be entitled to the dividends-received
deduction on all or a portion of such Funds' dividends to the extent that a
Fund's income is derived from dividends (which, if received directly, would
qualify for such deduction) received from domestic corporations. In order to
qualify for the dividends-received deduction, a corporate shareholder must hold
the fund shares paying the dividends upon which the deduction is based for at
least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certi-
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fied correct Taxpayer Identification Number and has not certified that
withholding does not apply, or if the Internal Revenue Service has notified
Nations Fund that the Taxpayer Identification Number listed on a shareholder
account is incorrect according to its records, or that the shareholder is
subject to backup withholding. Amounts withheld are applied to the shareholder's
Federal tax liability, and a refund may be obtained from the Internal Revenue
Service if withholding results in overpayment of taxes. Federal law also
requires the Funds to withhold 30% or the applicable tax treaty rate from
dividends paid to certain nonresident alien, non-U.S. partnership and non-U.S.
corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisers with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage and non-mortgage-backed securities.
Interests in pools of these assets 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. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage-backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage-backed securities, see the related SAI.
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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may
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be less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
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. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage described above. 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a
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future date, at the same price. In addition, a Fund is paid a fee as
consideration for entering into the commitment to purchase. 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.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the United States Dollar. A Fund either
enters into these transactions on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. A forward foreign currency exchange
contract is an obligation by a Fund to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or
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the adoption of other foreign governmental restrictions which might adversely
affect the payment of principal and interest on such obligations. In addition,
foreign issuers in general may be subject to different accounting, auditing,
reporting, and record keeping standards than those applicable to domestic
companies, and securities of foreign issuers may be less liquid and their prices
more volatile than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933 (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A and Section 4(2) under the 1933 Act. Any
such security will not be considered illiquid so long as it is determined by a
Fund's Board of Trustees or Board of Directors or the Adviser, acting under
guidelines approved and monitored by the Fund's Board,
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after considering trading activity, availability of reliable price information
and other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Nations Equity Income Fund may invest in
lower-rated debt securities. Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Fund's Board, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: 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.
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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.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. 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. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. 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.
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.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
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.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
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REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker-dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Gov-
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ernment agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government Obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government Obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest
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payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is
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unlikely to be affected by reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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
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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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
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 inter-
43
<PAGE>
est in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BB -- 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:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
44
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes NATIONS EQUITY INDEX FUND
(the "Fund") of Nations Fund Trust, an open-end
management investment company in the Nations Fund
Family ("Nations Fund" or "Nations Fund Family").
This Prospectus describes one class of shares of
the Fund -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Fund that prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust is
contained in a separate Statement of Additional
Information (the "SAI"), that has been filed with
the Securities and Exchange Commission (the "SEC")
and is available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAI bears the
same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Fund. TradeStreet
Investment Associates, Inc. ("TradeStreet") is
sub-investment adviser to the Fund. As used herein
the "Adviser" shall mean NBAI and/or TradeStreet as
the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Equity Index Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Fund
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objective 6
How Objective Is Pursued 6
How Performance Is Shown 8
How The Fund Is Managed 9
Organization And History 12
About Your Investment
How To Buy Shares 13
How To Redeem Shares 14
How To Exchange Shares 16
Shareholder Servicing And Distribution Plan 17
How The Fund Values Its Shares 18
How Dividends And Distributions Are Made; Tax
Information 18
Appendix A -- Portfolio Securities 20
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES:
(Bullet) The investment objective of Nations Equity Index Fund is to
seek investment results that correspond, before fees and
expenses, to the total return of the Standard & Poor's 500
Composite Stock Price Index.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Fund.
See "How The Fund Is Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Equity Index Fund declares and pays
dividends from net investment income each calendar quarter. The Fund's
net realized capital gains, including net short-term capital gains are
distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. Investments in the Fund are not insured against loss of principal.
Investments by the Fund in common stocks and other equity securities
are subject to stock market risk, which is the risk that the value of
the stocks the Fund holds may decline over short or even extended
periods. Certain of the Fund's investments constitute derivative
securities. Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. For a discussion of these and other factors, see "How
Objective Is Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Fund. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Fund. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
<TABLE>
<CAPTION>
INVESTOR A SHARES
Nations Equity
SHAREHOLDER TRANSACTION EXPENSES Index Fund
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of the lower of the original purchase price
or redemption proceeds)1 None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers) .10%
Rule 12b-1 Fees (Including shareholder servicing fees) .25%
Other Expenses .25%
Total Operating Expenses (After Fee Waivers) .60%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Equity
Index Fund
<S> <C>
1 Year $ 6
3 Years $ 19
5 Years $ 33
10 Years $ 75
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Investor A Shares will bear either directly or indirectly. The figures in the
above tables are based on amounts incurred during the Fund's most recent fiscal
period and have been adjusted as necessary to reflect current service provider
fees. There is no assurance that any fee waivers and reimbursements will
continue beyond the current fiscal year. Absent fee waivers and reimbursements,
"Management Fees" and "Total Operating Expenses" would have been .50% and 1.00%,
respectively. If fee waivers and/or reimbursements are discontinued, the amounts
contained in the "Examples" above may increase. Long-term shareholders in the
Fund could pay more in sales charges than the economic equivalent of the maximum
front-end sales charges applicable to mutual funds sold by members of the
National Association of Securities Dealers, Inc. For more complete descriptions
of the Fund's operating expenses, see "How The Fund Is Managed." For a more
complete description of the Rule 12b-1 and shareholder servicing fees payable by
the Fund, see "Shareholder Servicing And Distribution Plan."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE>
Financial Highlights
The following audited financial information has been derived from the financial
statements of Nations Fund Trust. Price Waterhouse LLP is the independent
accountant to Nations Fund Trust. The reports of Price Waterhouse LLP for the
most recent fiscal period of Nations Fund Trust accompany the financial
statements for such periods and are incorporated by reference in the SAI, which
is available upon request. For more information see "Organization And History."
Shareholders of the Fund will receive unaudited semi-annual reports describing
the fund's investment operations and annual financial statements audited by the
Fund's independent accountant.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EQUITY INDEX FUND
PERIOD PERIOD
ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.91 $ 12.29
Net investment income 0.06 0.03
Net realized and unrealized gain/(loss) on investments 0.87 0.59
Net increase in net asset value from operations 0.93 0.62
Distributions:
Dividends from net investment income (0.12) --
Distributions from net realized capital gains (0.14) --
Total dividends and distributions (0.26) --
Net asset value, end of period $ 13.58 $ 12.91
Total return++ 7.26% 5.04%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 95 $ 11
Ratio of operating expenses to average net assets 0.35%+ 0.62%+
Ratio of operating expenses to average net assets including interest expense 0.35%+ 0.63%+
Ratio of net investment income to average net assets 1.99%+ 2.19%+
Portfolio turnover rate 2% 18%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.73%+ 1.03%+
Net investment income per share without waivers and/or expense reimbursements $ 0.05 $ 0.02
Average commission rate paid (b) $ 0.0291 N/A
</TABLE>
* Nations Equity Index Fund's Investor A Shares commenced operations on October
10, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charge.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
5
<PAGE>
Objective
NATIONS EQUITY INDEX FUND: The investment objective of the Nations Equity Index
Fund is to seek investment results that correspond, before fees and expenses, to
the total return of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index" or the "Index").(1)
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
The Fund is not managed according to traditional methods of "active" investment
management, which involve the buying and selling of securities based upon
economic, financial, and market analyses and investment judgment. Instead, the
Fund, utilizing a "passive" or "indexing" investment approach, attempts to
duplicate the performance of the S&P 500 Index.
How Objective Is Pursued
NATIONS EQUITY INDEX FUND: Under normal conditions, the Fund will invest at
least 80% of its assets in equity securities of companies which compose the S&P
500 Index. The S&P 500 Index consists of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and its
current price. In seeking to duplicate the performance of the S&P 500 Index, the
Adviser will attempt to allocate the Fund's portfolio among common stocks in
approximately the same weightings as the S&P 500 Index, beginning with the
heaviest weighted stocks that make up a larger portion of the Index's value.
The Adviser generally will seek to match the composition of the S&P 500 Index as
closely as possible, but may not always invest the Fund's portfolio to mirror
the Index exactly. Because of the difficulty and expense of executing relatively
small stock transactions, the Fund may not always be invested in the less
heavily weighted S&P 500 Index stocks and may at times have its portfolio
weighted differently from the S&P 500 Index. The Fund may omit or remove an S&P
500 Index stock from its portfolio if, following objective criteria, the Adviser
judges the stock to be insufficiently liquid or believes the merit of the
investment has been substantially impaired by extraordinary events or financial
conditions. The Adviser may purchase stocks that are not included in the S&P 500
Index to compensate for these differences if it believes that their prices will
move together with the prices of S&P 500 Index stocks omitted from the
portfolio.
The correlation between the performance of Nations Equity Index Fund and the S&P
500 Index is expected to be over 0.95 on an annual basis. A correlation of 1.00
would indicate perfect correlation, which would be achieved when the net asset
value of the Fund, including the value of its dividend and capital gains
distributions, increases or decreases in exact proportion to changes in the S&P
500 Index. The Fund's ability to track the S&P 500 Index, however, may be
affected by, among other things, transaction costs, changes in either the
composition of the S&P 500 Index or the number of shares outstanding for the
components of the S&P 500 Index, and the timing and amount of shareholder
purchase and redemptions. The Fund may utilize stock index futures contracts to
minimize tracking error. In connection with engaging in futures transactions,
the Fund may hold cash, cash equivalents, and/or U.S. Government securities.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical in common stocks. However, the Fund will maintain
a reasonable position in high-quality short-term debt securities and money
market instruments to meet redemption requests. If the Adviser believes that
market
6
<PAGE>
conditions warrant a temporary defensive posture, the Fund may invest without
limitation in high-quality short-term debt securities and money market
instruments. These securities and money market instruments may include domestic
and foreign commercial paper, certificates of deposit, bankers' acceptances and
time deposits, U.S. government securities and repurchase agreements.
The Fund also may invest a portion of its portfolio in instruments whose return
depends on stock market prices. These may include debt securities whose prices
or interest rates are indexed to the return of the S&P 500 Index, or swap
agreements linked to the S&P 500 Index, and options and futures contracts. The
Fund would invest in these types of instruments in order to seek to match the
total return of the Index in accordance with its investment objective. However,
instruments linked to stock market returns may not track the return of the Index
in all cases, and may involve additional credit risks. The Fund may also invest
in warrants. For additional information concerning the Fund's investment
practices, see "Appendix A."
The 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 Commodity Futures
Trading Commission ("CFTC") and options thereon for market exposure risk
management. The Fund may lend its portfolio securities to qualified
institutional investors. The Fund also may invest in restricted, private
placement and other illiquid securities. In addition, the Fund may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis. The inclusion of a stock in the S&P 500
Index in no way implies that S&P believes the stock to be an attractive
investment. The Index is determined, composed and calculated by S&P without
regard to the Fund. S&P is neither a sponsor of, nor in any way affiliated with
the Fund, and S&P makes no representation or warranty, expressed or implied, on
the advisability of investing in the Fund or as to the ability of the Index to
track general stock market performance. S&P disclaims all warranties of
merchantability or fitness for a particular purpose or use with respect to the
Index or any data included therein.
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. If the Fund's annual portfolio turnover rate exceeds 100%, it
may result in higher brokerage costs and possible tax consequences for the Fund
and its shareholders. For the Fund's portfolio turnover rate see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of the Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in the Fund are not insured against loss
of principal.
Investments by the 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.
Certain of the Fund's 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 Fund's investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the Fund's investment objective and do not unduly increase the
Fund's exposure to market or other risks. For additional risk information
regarding the Fund's investments in particular instruments, see "Appendix
A -- Portfolio Securities."
INVESTMENT LIMITATIONS: The Fund is subject to a number of investment
limitations. The following investment limitations are matters of
7
<PAGE>
fundamental policy and may not be changed without the affirmative vote of the
holders of a majority of the Fund's outstanding shares. Other investment
limitations that cannot be changed without such a vote of shareholders are
described in the SAI.
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that the Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of the Fund's assets, the Fund will not hold
more than 10% of the voting securities of any issuer.
The investment objective and policies of the Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of the Fund change, shareholders should consider whether
the Fund remains an appropriate investment in light of their then current
positions and needs.
In order to register the Fund's shares for sale in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should the Fund determine that any
such commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Fund may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Fund may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of the Fund (as stated in the advertisement)
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment (reflecting the deduction of
any applicable contingent deferred sales charge ("CDSC")), assuming the
reinvestment of all dividend and capital gains distributions. Aggregate total
return reflects the total percentage change in the value of the investment over
the measuring period, again assuming the reinvestment of all dividends and
capital gain distributions. Total return may also be presented for other periods
or may not reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of the Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio
8
<PAGE>
and the Fund's operating expenses. Investment performance also often reflects
the risks associated with the Fund's investment objective and policies. These
factors should be considered when comparing the Fund's investment results to
those of other mutual funds and other investment vehicles. Since yields
fluctuate, yield data cannot necessarily be used to compare an investment in the
Fund with bank deposits, savings accounts, and similar investment alternatives
which often provide an agreed-upon or guaranteed fixed yield for a stated period
of time.
In addition to Investor A Shares, the Fund offers Primary A and Primary B
Shares. Each class of shares may bear different sales charges, shareholder
servicing fees, loads and other expenses, that may cause the performance of a
class to differ from the performance of the other classes. Total return and
yield quotations will be computed separately for each class of the Fund's
shares. Any quotation of total return or yield not reflecting CDSCs would be
reduced if such sales charges were reflected. Any fees charged by a selling
agent and/or servicing agent directly to its customers' accounts in connection
with investments in the Fund will not be included in calculations of total
return or yield. The Fund's annual report contains additional performance
information and is available upon request without charge from the Fund's
distributor or an investor's selling agent.
How The Fund Is Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Board of Trustees. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Fund. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Fund. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and in accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, the Fund may invest in
securities of companies with which NationsBank has a lending relationship. For
the services provided and expenses assumed pursuant to an Investment Advisory
Agreement, NBAI is enti-
9
<PAGE>
tled to receive an advisory fee, computed daily and paid monthly, at the annual
rate of 0.50% of the average daily net assets of the Fund.
For the services provided and the expenses assumed pursuant to the sub-advisory
agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.10% of the Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund. In addition, the Adviser may from time to time
compensate Agents, as defined below, for providing certain services to
Customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.09% of the Fund's average daily net assets.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.09% of the Fund's average daily net assets.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.10% of the Fund's average daily net assets.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund. He has been
Portfolio Manager for Nations Equity Index Fund since 1993. Prior to assuming
his position with TradeStreet, he was Vice President and Structured Products
Manager for the Investment Management Group at NationsBank. He has worked in the
investment community since 1990. His past experience includes portfolio
management, derivatives management and quantitative analysis for NationsBank and
Sovran Bank of Tennessee. Mr. Golden received a B.B.A. in Finance from Belmont
University. He is a Chartered Financial Analyst candidate and a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised NationsBank and Nations Fund that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement, and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, 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.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Fund, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Fund.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to a
Co-Administration Agreement.
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Under the Co-Administration Agreement, First Data provides various
administrative and accounting services to the Fund including performing the
calculations necessary to determine the net asset value per share and dividends
of each class of the Fund, preparing tax returns and financial statements and
maintaining the portfolio records and certain of the general accounting records
for the Fund.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of the Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the rate of 0.10% of the
average daily net assets of the Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Fund's administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Fund's average daily net
assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Fund. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares of the Fund. See "Shareholder Servicing And
Distribution Plan."
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the Fund.
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of the Fund, (ii) $10.00 per repurchase collateral transaction
by the Fund, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Fund.
First Data serves as transfer agent (the "Transfer Agent") for the Fund's
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. The Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor A Shares bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
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Organization And History
The Fund is a member of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Fund currently
offers three classes of shares -- Primary A Shares, Primary B Shares and
Investor A Shares. This Prospectus relates only to the Investor A Shares. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
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About Your Investment
How To Buy Shares
The Fund has established various procedures for purchasing Investor A Shares in
order to accommodate different investors. Purchase orders for Investor A Shares
may be placed directly with the Fund, or through banks, broker/dealers or other
financial institutions (including certain affiliates of NationsBank) that have
entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agents and
Selling Agents are sometimes referred to hereafter as "Agents."
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Fund, except that the
minimum initial investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Fund, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH THE FUND: Investors may open a regular
(non-retirement) account directly with the Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
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BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund with a
reinvestment slip to the address set forth above. To purchase additional shares
by wire, follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares in the Fund
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Fund's Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Fund's Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent or Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
Shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with the Fund,
redemption orders should be communicated to the Fund by calling Investor
Services at 1-800-982-2271 or in writing (shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within
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three Business Days after receipt of the order by the Fund. For shareholders who
purchased their shares through an Agent, redemption orders should be transmitted
by telephone or in writing through the same Agent. Redemption proceeds are
normally wired to the redeeming Agent within three Business Days after receipt
of the order by Stephens or by the Transfer Agent. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by the Fund, Stephens, or the Transfer Agent, as the case may be. The
Agents are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customer's account with the redemption
proceeds on a timely basis. Redemption proceeds for shares purchased by check
may not be remitted until at least 15 days after the date of purchase to ensure
that the check has cleared; a certified check, however, is deemed to be cleared
immediately. No charge for wiring redemption payments is imposed by Nations
Fund. There is no redemption charge.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below
Investor A Shares of the Fund that were purchased prior to January 1, 1996
through an Account may be subject to a CDSC equal to 1.00% of the lesser of the
net asset value or the purchase price of the shares being redeemed if such
shares are redeemed within one year of purchase, declining to 0.50% in the
second year after purchase and eliminated thereafter. No CDSC is imposed on
increases in net asset value above the initial purchase price, including shares
acquired by reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA; and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor A Shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such
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redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor A Shares in the account. Shareholders are responsible for providing
evidence sufficient to establish that they are eligible for any waiver of the
CDSC.
Within 120 days after a redemption of Investor A Shares of the Fund, a
shareholder may reinvest any portion of the proceeds of such redemption in
Investor A Shares of the Fund. The amount which may be reinvested is limited to
an amount up to, but not exceeding, the redemption proceeds (or to the nearest
full share if fractional shares are not purchased). A shareholder exercising
this privilege would receive a pro rata credit for any CDSC paid in connection
with the prior redemption. A shareholder may not exercise this privilege with
the proceeds of a redemption of shares previously purchased through the
reinvestment privilege. In order to exercise this privilege, a written order for
the purchase of Investor A Shares must be received by the Transfer Agent or by
Stephens within 120 days after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Fund if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings account
in a stated amount of not less than $25 on or about the 10th or 25th day of the
applicable month of withdrawal. Investor A Shares will be redeemed as necessary
to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Agent or by Nations Fund at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on
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<PAGE>
which the shareholder may realize a capital gain or loss. And, the ability to
deduct capital losses on an exchange may be limited in situations where there is
an exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in the state of the shareholder's residence may
be acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. In such
event, shareholders should consider communicating their exchange requests by
mail.
If Investor A Shares of the Fund purchased prior to January 1, 1996 are
exchanged for shares of the same class of another fund, any CDSC applicable to
the original shares purchased will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of the Fund.
Shareholder Servicing And Distribution
Plan
INVESTOR A SHARES: The Fund's Shareholder Servicing and Distribution Plan (the
"Investor A Plan"), adopted pursuant to Rule 12b-1 under the 1940 Act, permits
the Fund to compensate (i) Servicing Agents and Selling Agents for services
provided to their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Aggregate payments under the Investor A Plan are calculated daily and paid
monthly at a rate or rates set from time to time by the Fund, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from the Fund
on behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. The fees payable to Selling
Agents are used primarily to compensate or reimburse Selling Agents for
providing sales support assistance in connection with the sale of Investor A
Shares to Customers, which may include forwarding sales literature and
advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other
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consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Fund during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 1.00% of the offering
price per share on all sales of Investor A Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Investor A Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Fund
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreement and Sales Support
Agreement. See the SAI for more details on the Investor A Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor A Shares for various services provided in connection with
such Customers' accounts. These fees would be in addition to any amounts
received by a Selling Agent under its Sales Support Agreement with Stephens or
by a Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreement and Servicing Agreement require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How The Fund Values Its Shares
The Fund calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees.
How Dividends And Distributions
Are Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Fund distributes any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Distributions paid by the
Fund with respect to one class of shares may be greater or
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<PAGE>
less than those paid with respect to another class of shares due to the
different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor A Shares of the same class in the
Fund. Dividends and distributions are paid in cash within five Business Days of
the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor A Shares.
TAX INFORMATION: The Fund intends to qualify as a "regulated investment company"
under the Code. Such qualification relieves the Fund of liability for Federal
income tax on amounts distributed in accordance with the Code.
The Fund intend to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Fund of its net investment income and the excess, if any, of its net short-term
capital gain over their net long-term capital loss are taxable as ordinary
income to shareholders who are not currently exempt from Federal income tax,
whether such income is received in cash or reinvested in additional shares.
(Federal income tax for distributions to an IRA are generally deferred under the
Code.) Corporate investors in the Fund may be entitled to the dividends received
deduction on all or a portion of the Fund's dividends.
Substantially all of the Fund's net realized long-term capital gains will be
distributed at least annually. The Fund will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Fund's shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of tax. Federal law also requires the Fund to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Fund and its
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAI.
19
<PAGE>
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How Objective Is Pursued" section of this Prospectus
identifies the Fund's permissible investments, and the SAI contain more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Fund may
borrow money from banks for temporary purposes in amounts of up to one-third of
its respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. The Fund is a party to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements may be considered to be borrowings. When the Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. Generally, the effect of such a transaction is that the Fund
can recover all or most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase agreement, while it will be
able to keep the interest income associated with those portfolio securities.
Such transactions are only advantageous if the interest cost to the Fund of the
reverse repurchase transaction is less than the cost of obtaining the cash
otherwise.
At the time the 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 Fund is 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 Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obliga-
20
<PAGE>
tion to repurchase the securities. In addition, there is a risk of delay in
receiving collateral or securities or in repurchasing the securities covered by
the reverse repurchase agreement or even of a loss of rights in the collateral
or securities in the event the buyer of the securities under the reverse
repurchase agreement files for bankruptcy or becomes insolvent. The Fund only
enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage described above. Under the requirements of the 1940
Act, the Fund is required to maintain an asset coverage (including the proceeds
of the borrowings) of at least 300% of all borrowings. Depending on market
conditions, the Fund's asset coverage and other factors at the time of a reverse
repurchase, the Fund may not establish a segregated account when the Adviser
believes it is not in the best interests of the Fund to do so. In this case,
such reverse repurchase agreements will be considered borrowings subject to the
asset coverage described above.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objective. In addition, the Fund 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 the Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: The Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of
the Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of the Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. The Fund's share
price and yield depend, in part, on the maturity and quality of its debt
instruments.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Fund may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect the Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options) and options on foreign
currencies, and investing in futures contracts for the purchase or sale of
instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, the Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged
21
<PAGE>
positions to avoid adverse tax consequences. The Fund may not purchase put and
call options which are traded on a national stock exchange in an amount
exceeding 5% of its net assets. Further information on the use of futures,
options and other derivative instruments, and the associated risks, is contained
in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 15% of the value of its net assets in securities that are illiquid or such
lower percentage as may be required by the states in which the Fund sells its
shares. Repurchase agreements, time deposits and guaranteed in-
vestment contracts that do not provide for payment within seven days after
notice, and illiquid restricted securities are subject to the limitation on
illiquid securities.
If otherwise consistent with its investment objective and policies, the Fund may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A and Section 4(2) under the 1933 Act. Any
such security will not be considered illiquid so long as it is determined by a
Fund's Board of Trustees or the Adviser, acting under guidelines approved and
monitored by the Fund's Board, after considering trading activity, availability
of reliable price information and other relevant information, that an adequate
trading market exists for that security. To the extent that, for a period of
time, qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A and Section 4(2), the level of illiquidity of a Fund
holding such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of its
portfolio from interest rate fluctuations, the Fund may enter into various
hedging transactions, such as interest rate swaps and the purchase or sale of
interest rate caps and floors. Interest rate swaps involve the exchange by the
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.
The Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. The Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of the Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. The Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
OTHER INVESTMENT COMPANIES: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the 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 the Fund bears directly in connection with its
own operations.
22
<PAGE>
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 30% of the
value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Fund may purchase
and sell futures contracts and related options with respect to non-U.S. stock
indices, non-U.S. interest rates and foreign currencies, that have been approved
by the CFTC for investment by U.S. investors, for the purpose of hedging against
changes in values of the Fund's securities or changes in the prevailing levels
of interest rates or currency exchange rates. The contracts entail certain
risks, including but not limited to the following: no assurance that futures
contracts transactions can be offset at favorable prices; possible reduction of
the Fund's total return due to the use of hedging; possible lack of liquidity
due to daily limits on price fluctuation; imperfect correlation between the
contracts and the securities or currencies being hedged; and potential losses in
excess of the amount invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless the Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that the
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value
23
<PAGE>
of debt instruments, including U.S. Government obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
24
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes NATIONS SHORT-TERM INCOME
FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND,
NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND AND NATIONS DIVERSIFIED
INCOME FUND (the "Funds") of Nations Fund Trust and
Nations Fund, Inc., each an open-end management
investment company in the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of the
Funds -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc., is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Short-Term Income
Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations Strategic Fixed
Income Fund
Nations Diversified Income
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 6
Objectives 11
How Objectives Are Pursued 12
How Performance Is Shown 16
How The Funds Are Managed 17
Organization And History 21
About Your Investment
How To Buy Shares 22
How To Redeem Shares 24
How To Exchange Shares 26
Shareholder Servicing And Distribution Plans 27
How The Funds Value Their Shares 29
How Dividends And Distributions Are Made;
Tax Information 29
Appendix A -- Portfolio Securities 30
Appendix B -- Description Of Ratings 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE
FUNDS' SAIS INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY NATIONS FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY NATIONS FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest
primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment objective is to
seek current income by investing primarily in securities issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective is to
seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment
grade fixed income securities.
(Bullet) Nations Diversified Income Fund's investment objective is to
seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income
securities.
(Bullet) Nations Strategic Fixed Income Fund's investment objective is
to seek total return by investing primarily in investment grade
fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
(Bullet) INVESTMENT ADVISER: NBAI serves as the investment adviser to the Funds.
NationsBanc Advisors, Inc. provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities, including U.S. Government
Obligations are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. The value of a Fund's investments in
debt securities 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Funds'
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor A Shares of the
indicated Fund over specified periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
SHAREHOLDER TRANSACTION EXPENSES Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price) None None None None
Maximum Deferred Sales Charge (as a percentage
of the lower of the original purchase price
or redemption proceeds)1 None None None None
<CAPTION>
Nations
Diversified
SHAREHOLDER TRANSACTION EXPENSES Income Fund
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage
of the lower of the original purchase price
or redemption proceeds)1 None
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average
net assets)
<TABLE>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .30% .40% .50% .50%
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .20%2 .20% .25% .20%
Other Expenses (After Expense Reimbursements) .25% .23% .30% .22%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) .75% .83% 1.05% .92%
<CAPTION>
Management Fees (After Fee Waivers) .50%
Nations
Diversified
Income Fund
<S> <C>
Rule 12b-1 Fees (including shareholder
servicing fees) (After Fee Waivers) .25%
Other Expenses (After Expense Reimbursements) .27%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) 1.02%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
2 Shareholder servicing fees for Nations Short-Term Income Fund are paid
pursuant to a separate Shareholder Servicing Plan. See "Shareholder Servicing
And Distribution Plans."
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor A Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Nations Short- Nations
Nations Short-Term Intermediate Government Nations Strategic
Income Fund Government Fund Securities Fund Fixed Income Fund
1 Year $ 8 $ 8 $ 11 $ 9
3 Years $ 24 $ 26 $ 33 $ 29
5 Years $ 42 $ 46 $ 58 $ 51
10 Years $ 94 $ 103 $ 128 $ 113
<CAPTION>
Nations
Diversified
Income Fund
1 Year $ 11
3 Years $ 33
5 Years $ 58
10 Years $ 128
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares of the Funds will bear either
5
<PAGE>
directly or indirectly. Certain figures contained in the above tables are based
on amounts incurred during each Fund's most recent fiscal year and have been
adjusted as necessary to reflect current service provider fees. There is no
assurance that any fee waivers and reimbursements will continue beyond the
current fiscal year. If fees waivers and/or reimbursements are discontinued, the
amounts contained in the "Examples" above may increase. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
For a more complete description of the Rule 12b-1 and shareholder servicing fees
payable by the Funds, see "Shareholder Servicing And Distribution Plans."
Absent fee waivers and expense reimbursements, "Management Fees," "Rule 12b-1
Fees" and "Total Operating Expenses" for Investor A Shares of the indicated Fund
would have been as follows: Nations Short-Term Income Fund -- .60%, .25% and
1.10%, respectively; Nations Short-Intermediate Government Fund -- .60%, .25%
and 1.08%, respectively; and Nations Strategic Fixed Income Fund -- .60%, .25%
and 1.07%; respectively. Absent fee waivers and expense reimbursements,
"Management Fees," "Other Expenses" and "Total Operating Expenses" would have
been as follows: Nations Government Securities Fund -- .64%, .30% and 1.19%,
respectively; and Nations Diversified Income Fund -- .60%, .27% and 1.12%,
respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of a Fund will receive unaudited semi-annual reports describing the
Fund's investment operations and financial statements audited by the Funds'
independent accountant.
6
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.19 0.59 0.48 0.51
Net realized and unrealized gain/(loss) on
investments (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value from
operations 0.11 0.95 (0.03) 0.77
Distributions:
Dividends from net investment income (0.19) (0.59) (0.46) (0.51)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.19) (0.59) (0.50) (0.51)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.13% 10.29% (0.33)% 8.03%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,810 $ 2,969 $ 2,490 $ 11,205
Ratio of operating expenses to average net assets 0.75%+ 0.76% 0.71% 0.57%
Ratio of net investment income to average net
assets 5.87%+ 6.12% 5.02% 5.07%
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.08% 1.06% 1.03% 0.99%
Net investment income per share without waivers
and/or expense reimbursements $ 0.18 $ 0.56 $ 0.45 $ 0.48
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on
investments (0.26)
Net increase/(decrease) in net asset value from
operations (0.18)
Distributions:
Dividends from net investment income (0.07)
Distributions in excess of net investment income --
Distributions from capital --
Total dividends and distributions (0.07)
Net asset value, end of period $ 9.75
Total return++ (1.81)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 254
Ratio of operating expenses to average net assets 0.45%+
Ratio of net investment income to average net
assets 5.39%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.05%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.07
</TABLE>
* Nations Short-Term Income Fund Investor A Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b)# 11/30/95# 11/30/94 11/30/93 11/30/92 11/30/91*
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17 $ 4.00##
Net investment income 0.07 0.23 0.22 0.22 0.27 0.10
Net realized and unrealized
gain/(loss) on investments (0.07) 0.21 (0.33) 0.14 (0.01) 0.17
Net increase/(decrease) in net
asset value from operations 0.00 0.44 (0.11) 0.36 0.26 0.27
Distributions:
Dividends from net investment
income (0.07) (0.23) (0.22) (0.22) (0.27) (0.10)
Distributions in excess of net
investment income (0.00)(a) (0.00)(a) (0.00)(a) -- -- --
Distributions from net
realized capital gains -- -- (0.02) (0.02) -- --
Total dividends and
distributions (0.07) (0.23) (0.24) (0.24) (0.27) (0.10)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.17
Total return++ 0.007%### 11.48% (2.41)% 8.85% 6.61%+++ 6.81%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 57,381 $ 64,848 $ 77,128 $ 173,449 $ 188,624 $ 53,874
Ratio of operating expenses to
average net assets 0.83%+ 0.80% 0.77% 0.70% 0.48% 0.08%+
Ratio of net investment income
to average net assets 5.12%+ 5.68% 5.58% 5.25% 6.34% 7.21%+
Portfolio turnover rate 189% 328% 133% 92% 25% 11%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.06%+ 1.00% 0.98% 0.94% 0.88% 0.82%+
Net investment income per
share without waivers and/or
expense reimbursements $ 0.06 $ 0.22 $ 0.21 $ 0.21 $ 0.25 $ 0.00(a)
</TABLE>
* Nations Short-Intermediate Government Fund Investor A Shares commenced
operations on August 5, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
## The Nations Short-Intermediate Government Fund's net asset value upon
commencement of operations was $2.00 per share. Effective September 25, 1991,
the net asset value doubled as a result of the reclassification of each
outstanding share into half as many shares (reverse split).
### Amount represents less than 0.01%.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
8
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b)# 05/31/95# 05/31/94 05/31/93# 05/31/92
<CAPTION>
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.36 $ 10.05
Net investment income 0.50 0.61 0.62 0.66 0.71
Net realized and
unrealized gain/(loss)
on investments (0.19) 0.06 (0.61) 0.16 0.38
Net increase/(decrease)
in net asset value
from operations 0.31 0.67 0.01 0.82 1.09
Distributions:
Dividends from net
investment income (0.48) (0.57) (0.56) (0.68) (0.75)
Distributions in excess
of net investment
income (0.02) -- (0.02) -- --
Distributions from net
realized capital gains -- -- -- -- --
Distributions in excess
of net realized
capital gains -- -- (0.05) (0.04) (0.03)
Distributions from
capital -- (0.04) (0.04) -- --
Total dividends and
distributions (0.50) (0.61) (0.67) (0.72) (0.78)
Net asset value, end of
period $ 9.67 $ 9.86 $ 9.80 $ 10.46 $ 10.36
Total return++ 3.20% 7.29% (0.11)% 8.18% 11.18%+++
Ratios to average net
assets/
supplemental data:
Net assets, end of
period (in 000's) $ 11,662 $ 10,928 $ 14,044 $ 15,354 $ 3,326
Ratio of operating
expenses to average
net assets 1.05%+ 1.01% 0.90% 1.00% 1.31%
Ratio of net investment
income to average net
assets 6.11%+ 6.44% 5.91% 6.52% 6.90%
Portfolio turnover rate 199% 413% 56% 103% 130%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 1.20%+ 1.19% 1.11% 1.15% 1.97%
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.49 $ 0.59 $ 0.59 $ 0.55 $ 0.07
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 05/31/91*
<S> <C>
Operating performance:
Net asset value,
beginning of period $ 10.01
Net investment income 0.09
Net realized and
unrealized gain/(loss)
on investments 0.02
Net increase/(decrease)
in net asset value
from operations 0.11
Distributions:
Dividends from net
investment income (0.07)
Distributions in excess
of net investment
income --
Distributions from net
realized capital gains --
Distributions in excess
of net realized
capital gains --
Distributions from
capital --
Total dividends and
distributions (0.07)
Net asset value, end of
period $ 10.05
Total return++ 1.07%+++
Ratios to average net
assets/
supplemental data:
Net assets, end of
period (in 000's) $ 661
Ratio of operating
expenses to average
net assets 1.35%+
Ratio of net investment
income to average net
assets 7.22%+
Portfolio turnover rate 5%
Ratio of operating
expenses to average
net assets without
waivers and/or expense
reimbursements 1.94%+++
Net investment income
per share without
waivers and/or expense
reimbursements $ 0.08+++
</TABLE>
* Nations Government Securities Fund Investor A Shares commenced operations on
April 17, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not acccord with the
results of operations.
(b) Fiscal year ended changed to March 31. Prior to this, the fiscal year ended
was May 31.
9
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.18 0.57 0.51 0.54
Net realized and unrealized gain/(loss) on
investments (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value from
operations (0.11) 1.47 (0.38) 1.16
Distributions:
Dividends from net investment income (0.18) (0.57) (0.49) (0.54)
Distributions in excess of net investment
income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.18) (0.57) (0.85) (0.55)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.11)% 16.22% (3.76)% 11.88%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,440 $ 6,662 $ 967 $ 1,138
Ratio of operating expenses to average net
assets 0.92%+ 0.91% 0.86% 0.76%
Ratio of net investment income to average net
assets 5.29%+ 5.85% 5.25% 5.25%
Portfolio turnover rate 133% 228% 307% 161%
Ratio of operating expenses to average net
assets without waivers
and/or expense reimbursements 1.03%+ 1.01% 0.94% 0.92%
Net investment income per share without waivers
and/or expense reimbursements $ 0.18 $ 0.56 $ 0.50 $ 0.53
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 9.99
Net investment income 0.01
Net realized and unrealized gain/(loss) on
investments (0.06)
Net increase/(decrease) in net asset value from
operations (0.05)
Distributions:
Dividends from net investment income --
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 9.94
Total return++ (0.49)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 113
Ratio of operating expenses to average net
assets 0.40%+
Ratio of net investment income to average net
assets 6.00%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net
assets without waivers
and/or expense reimbursements 1.00%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.01
</TABLE>
* Nations Strategic Fixed Income Fund Investor A Shares commenced operations on
November 19, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
10
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94# 11/30/93#
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 9.96
Net investment income 0.22 0.71 0.72 0.76
Net realized and unrealized gain/(loss) on
investments (0.40) 1.15 (1.06) 0.92
Net increase/(decrease) in net asset value from
operations (0.18) 1.86 (0.34) 1.68
Distributions:
Dividends from net investment income (0.22) (0.71) (0.72) (0.76)
Distributions in excess of net investment
income -- -- (0.00)(a) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.22) (0.71) (0.87) (0.76)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.67)% 19.82% (3.26)% 17.32%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,332 $ 13,150 $ 10,819 $ 13,291
Ratio of operating expenses to average net
assets 1.02%+ 1.05% 0.96% 0.70%
Ratio of net investment income to average net
assets 6.24%+ 6.78% 7.09% 6.87%
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.12%+ 1.18% 1.17% 1.10%
Net investment income per share without waivers
and/or expense reimbursements $ 0.22 $ 0.70 $ 0.70 $ 0.70
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
Operating performance:
Net asset value, beginning of period $ 10.02
Net investment income 0.01
Net realized and unrealized gain/(loss) on
investments (0.06)
Net increase/(decrease) in net asset value from
operations (0.05)
Distributions:
Dividends from net investment income (0.01)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.01)
Net asset value, end of period $ 9.96
Total return++ (0.49)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18
Ratio of operating expenses to average net
assets 0.40%+
Ratio of net investment income to average net
assets 7.61%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.00%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.01
</TABLE>
* Nations Diversified Income Fund Investor A Shares commenced operations on
November 25, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Amount represents less than $0.01 per share.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by invest-
11
<PAGE>
ing primarily in investment grade fixed income securities. The Fund may invest
in long-term, intermediate-term and short-term securities.
NATIONS DIVSERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities.
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity and duration of the Fund's portfolio will not exceed three
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the following six nationally recognized statistical rating organizations,
Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service, Inc.
("Fitch"), Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), IBCA Limited or its affiliate, IBCA Inc. (collectively,
"IBCA") or Thomson BankWatch, Inc. ("BankWatch") (collectively, "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; and mortgage-related
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, collateralized mortgage obligations or "CMOs", real
estate investment trust securities or mortgage-backed bonds; other asset-backed
and municipal securities rated by one of the six NRSROs, or, if not so rated,
determined by the Adviser to be of comparable quality to instruments so rated.
The Fund may also invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. 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. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic conditions warrant.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will not exceed seven years
and the duration will not
12
<PAGE>
exceed five years. U.S. Government Obligations have historically involved little
risk of loss of principal if held to maturity. However, due to fluctuations in
interest rates, the market value of such securities may vary during the period a
shareholder owns shares of the Fund. The value of the Fund's portfolio generally
will vary inversely with changes in prevailing interest rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six 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-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years and the Fund's duration is expected to be in a range of 3.5 to 6 years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six 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-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six 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 (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade debt obligations. It is expected that
the average weighted maturity of the Fund's portfolio will be ten years or less
and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; U.S. Government
Obligations; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund also may invest in dividend-paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade
13
<PAGE>
rating categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. 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. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity of the Fund's portfolio will be greater than five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed-and-variable rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds." They tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities.
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. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in "high quality" money market instruments (I.E.,
those within the two highest rating categories or unrated instruments deemed by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, existing circumstances warrant.
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GENERAL: Each of the 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 calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission ("CFTC") for market
exposure risk-management. Each of the Funds may lend its portfolio securities to
qualified institutional investors and may invest in restricted, private
placement and other illiquid securities. Each of the Funds may engage in reverse
repurchase agreements and dollar roll transactions. Additionally, each Fund may
purchase securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity and duration of the Funds.
For more information concerning these and other instruments in which the Funds
may invest and their investment practices, see "Appendix A".
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
PORTFOLIO TURNOVER: Generally, the 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 Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
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.
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.
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 Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund 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
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majority of the Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time a Fund may advertise the total return and yield on a class of
shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares may be calculated on an average annual total return basis or an aggregate
total return basis. The "total return" of a class of shares refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gains distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and a Fund's operating
expenses. Investment performance also often reflects the risks associated with
such Fund's investment objective and poli-
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cies. These factors should be considered when comparing a Fund's investment
results to those of other mutual funds and other investment vehicles. Since
yields fluctuate, yield data cannot necessarily be used to compare an investment
in a Fund with bank deposits, savings accounts, and similar investment
alternatives which often provide an agreed-upon or guaranteed fixed yield for a
stated period of time.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
C and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in a Fund will not be included in calculations of
yield and total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. The SAI for Nations Fund Trust contains the names of and general
background information concerning the Trustees of Nations Fund Trust. The SAI
for Nations Fund, Inc. contains the names of and general background information
concerning the Directors of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds. TradeStreet is a wholly owned subsidiary of
NationsBank. TradeStreet provides investment management services to individuals,
corporations, and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with the Funds'
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
a Fund, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a
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lending relationship. For the services provided and expenses assumed pursuant to
an Investment Advisory Agreements, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rate of 0.60% of the average
daily net assets of each of Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations Strategic Fixed Income Fund, and Nations Short-Intermediate
Government Fund; and 0.65% of the first $100 million of Nations Government
Securities Fund's average daily net assets, plus 0.55% of the Fund's average
daily net assets in excess of $100 million and up to $250 million, plus 0.50% of
the Fund's average daily net assets in excess of $250 million.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.15% of Nations Short-Term Income Fund's,
Nations Short-Intermediate Government Fund's, Nations Government Securities
Fund's, Nations Strategic Fixed Income Fund's and Nations Diversified Income
Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund. In addition, the Adviser may from time to time
compensate Agents, as defined below, for providing certain services to
Customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 1996, after waivers, NBAI
paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees at
the rate of 0.15% of the following Funds' average daily net assets: Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund and Nations
Government Securities Fund.
David M. Hetherington, CFA, is a Director of TradeStreet and Managing Director
of Fixed Income Management. Mr. Hetherington is responsible for overseeing all
fixed income product management and is Senior Portfolio Manager for Nations
Short-Term Income Fund. Mr. Hetherington has been Portfolio Manager for Nations
Short-Term Income Fund since 1995. Prior to assuming his position with
TradeStreet, he was Senior Vice President and Director of Fixed Income for the
Investment Management Group at NationsBank. Mr. Hetherington has worked in the
investment community since 1975. His past experience includes working as a
portfolio manager, a trust investment officer and a securities analyst for First
Citizens Bank and Deposit Guarantee as well as working as an Economist for the
U.S. Department of Labor in the Bureau of Labor Statistics. Mr. Hetherington
received a B.A. in Economics from Duke University. He holds the Chartered
Financial Analyst designation and is a member of the
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Association for Investment Management and Research.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud has
been Portfolio Manager for Nations Diversified Income Fund since 1992. Prior to
assuming his position with TradeStreet, he was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Ahnrud
has worked for the Investment Management Group at NationsBank since 1985 where
his responsibilities initially included institutional investment management
sales and later involved high yield credit analysis. Mr. Ahnrud received a dual
B.S. in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company, Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements 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 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 such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109,
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serves as the co-administrator of the Funds pursuant to a Co-Administration
Agreements. Under the terms of the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds, including
performing the calculations necessary to determine net asset values and
dividends, preparing tax returns and financial statements, maintaining the
portfolio records and certain general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the rate of 0.10% of the
following Funds' average daily net assets: Nations Short-Intermediate Government
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund and
Nations Strategic Fixed Income Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Government Securities Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor A Shares. See "Shareholder Servicing And Distribution
Plans."
NationsBank of Texas, N.A., ("NationsBank of Texas" or the "Custodian"), serves
as the Funds' custodian. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation.
In return for providing custodial services, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees payable monthly (i) at the
rate of 1.25% of 1% of the average daily net assets of each Fund, (ii) $10.00
per repurchase collateral transaction by the Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor A Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachuetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. Each Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor A Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and sales support costs. Any general expenses of
Nations Fund Trust and/or Nations Fund, Inc. that are not readily identifi-
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able as belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bear to the assets
of Nations Fund Trust or Nations Fund, Inc. or in such other manner as the Board
of Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Investor A, Investor C, Investor N, Primary A
and Primary B Shares. This Prospectus relates only to the Investor A Shares of
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund and Nations Short-Intermediate Government Fund of
Nations Fund Trust. To obtain additional information regarding the Funds' other
classes of shares which may be available to you, contact your Selling Agent (as
defined below) or Nations Fund at 1-800-321-7854.
Each share is without par value, represents an equal proportionate interest in
the related fund with other shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such fund as are declared in the discretion of Nations Fund Trust's Board of
Trustees. Nations Fund Trust's Declaration of Trust authorizes the Board of
Trustees to classify or reclassify any class of shares into one or more series
of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the 1940 Act
requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's related SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
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Investor A Shares of Nations Government Securities Fund of Nations Fund, Inc. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor A Shares
in order to accommodate different investors. Purchase orders for Investor A
Shares may be placed directly with a Fund or through banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agents and
Selling Agents are sometimes referred to hereafter as "Agents."
In addition, Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
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Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Funds, except that the
minimum initial investment is:
(Bullet) $500 IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor A Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Funds, and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH A FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
RETIREMENT ACCOUNTS: For IRAs and other retirement accounts, investors should
call Investor Services at 1-800-982-2271.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund which
identifies the name of the Fund and class of shares and include a reinvestment
slip to the address set forth above. To purchase additional shares by wire,
follow the wiring instructions set forth above.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately
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available funds in payment of the purchase price are received by the Funds'
Custodian. Such payment must be received not later than 4:00 p.m., Eastern time,
by the third Business Day following receipt of the order. If funds are not
received by such date, the order will not be accepted and notice thereof will be
given to the Agent placing the order. Payment for orders which are not received
or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank which is a
member of the Automated Clearing House to his/her Fund account. Transfers will
occur on or about the 15th and/or 30th day of the applicable month. The
systematic investment amount may be in any amount from $25 to $100,000. For more
information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by the Fund. For shareholders who purchased
their shares through an Agent, redemption orders should be transmitted by
telephone or in writing through the same Agent. Redemption proceeds are normally
wired to the redeeming Agent within three Business Days after receipt of the
order by Stephens or by the Transfer Agent. Redemption orders are effected at
the net asset value per share next determined after receipt of the order by the
Fund, Stephens, or the Transfer Agent, as the case may be. The Agents are
responsible for transmitting redemption orders to Stephens or to the Transfer
Agent and for crediting their Customer's account with the redemption proceeds on
a timely basis. Redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately. No charge for wiring redemption payments is imposed by Nations
Fund. There is no redemption charge.
Nations Fund may redeem a shareholder's Investor A Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of
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an Agent pursuant to arrangements between the Agent and its Customers. Nations
Fund also may redeem shares of a Fund involuntarily or make payment for
redemption in readily marketable securities or other property under certain
circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor Shares represented by certificates,
the Transfer Agent must have received such certificates at its principal office.
All such certificates must be endorsed by the redeeming shareholder or
accompanied by a signed stock power, in each instance with the signature
guaranteed by a commercial bank or a member of a major stock exchange, unless
other arrangements satisfactory to Nations Fund have previously been made.
Nations Fund may require any additional information reasonably necessary to
evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that were purchased prior to January 1, 1996 in
amounts of $1 million or more or through the Nations Fund Personal Investment
Planner may be subject to a CDSC equal to 1.00% of the lesser of the net asset
value or the purchase price of the shares being redeemed if such shares are
redeemed within one year of purchase, declining to 0.50% in the second year
after purchase and eliminated thereafter. No CDSC is imposed on increases in net
asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
retirement plans, (except in cases of plan level terminations); (b)
distributions from an IRA following attainment of age 59 1/2; (c) a tax-free
return of an excess contribution to an IRA, and (d) distributions from a
qualified retirement plan that are not subject to the 10% additional Federal
withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected pursuant
to Nations Fund's right to liquidate a shareholder's account, including
instances where the aggregate net asset value of the Investor A Shares held in
the account is less than the minimum account size, (iv) in connection with the
combination of Nations Fund with any other registered investment company by
merger, acquisition of assets or by any other transaction, and (v) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor A Shares in the account. Shareholders are responsible for providing
evidence sufficient to establish that they are eligible for any waiver of the
CDSC.
Within 120 days after a redemption of Investor A Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor A Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
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AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the
Investor A Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor A Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor A Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer or to a checking or savings account in a stated amount of
not less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor A Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling or Servicing Agent or by Nations Fund at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For investors who purchased their shares through
an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. And, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in the state of the shareholder's residence may
be acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. In such
event, shareholders should consider communicating their exchange requests by
mail.
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If Investor A Shares of the Funds purchased prior to January 1, 1996 are
exchanged for shares of the same class of another fund, any CDSC applicable to
the original shares purchased will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption) will be computed from
the time of the initial purchase of the Investor A Shares of a Fund.
Investor A Shares of Nations Short-Term Income Fund acquired directly or
indirectly through an exchange from Investor N Shares of another non-money
market fund may be re-exchanged only for Investor N Shares of another non-money
market fund, Investor C Shares of a Nations Fund money market fund or Investor A
Shares of Nations Short-Term Municipal Income Fund. Such shares (and any
Investor A or Investor C Shares acquired through the exchange of such shares)
will remain subject to the CDSC schedule applicable to the Investor N Shares
originally purchased. The holding period (for the purpose of determining the
applicable rate of the CDSC) does not accrue while the shares owned are Investor
A Shares of Nations Short-Term Municipal Income Fund or Nations Short-Term
Income Fund or Investor C Shares of a Nations Fund money market fund. The CDSC
that is ultimately charged upon redemption is based upon the total period of
time the shareholder holds Investor N Shares of any fund that charges a CDSC.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one fund of
Nations Fund to another as allowed by the applicable exchange rules within the
prospectus. Exchanges will occur on or about the 15th or 30th day of the
applicable month. The shareholder must have an existing position in both Funds
in order to establish the AEF. This feature may be established by directing a
request to the Transfer Agent by telephone or in writing. For additional
information, a shareholder should contact his/her Selling Agent or Investor
Services.
Shareholder Servicing And Distribution
Plans
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits each Fund to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers that own Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Nations Short-Term Income Fund, however, may not pay for shareholder servicing
activities under the Investor A Plan. Aggregate payments under the Funds'
Investor A Plan are calculated daily and paid monthly at a rate or rates set
from time to time by each Fund, provided that the annual rate may not exceed
0.25% of the average daily net asset value of the Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A
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Shares; (v) arranging for bank wires; and (vi) providing general shareholder
liaison services. The fees payable to Selling Agents are used primarily to
compensate Selling Agents for providing sales support assistance in connection
with the sale of Investor A Shares to Customers, which may include forwarding
sales literature and advertising provided by Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which if
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan or upon receipt of a CDSC.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the relevant SAI for more details on the Investor A Plan.
In addition, the Trustees have approved a Shareholder Servicing Plan ("Servicing
Plan") for the Investor A Shares of Nations Short-Term Income Fund. The
Servicing Plan permits Nations Short-Term Income Fund to compensate Servicing
Agents for services provided to their Customers that own Investor A Shares.
Payments under the Servicing Plan are calculated daily and paid monthly at a
rate or rates set from time to time by Nations Short-Term Income Fund, provided
that the annual rate may not exceed 0.25% of the average daily net asset value
of the Fund's Investor A Shares. The fees payable to Servicing Agents under the
Servicing Plan are used primarily to compensate or reimburse Servicing Agents
for shareholder services provided, and related expenses incurred, by such
Servicing Agents. The shareholder services provided by Servicing Agents may
include, but are not limited to, those discussed above with respect to the
Investor A Plan.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the relevant SAI
for more details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services provided in connection with a
Customer's account. These fees would be in addition to any amounts received by a
Selling Agent under its Sales Support Agreement with Stephens or by a Servicing
Agent under its Servicing Agreement with Nations Fund. The Sales Support
Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
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How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Selling and Servicing Agents may provide for
the reinvestment of dividends in the form of additional Investor A Shares of the
same class in the same Fund. Dividends and distributions are paid in cash within
five Business Days of the end of the month or quarter to which the dividend
relates. Dividends and distributions payable to a shareholder are paid in cash
within five Business Days after a shareholder's complete redemption of his/her
Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
The Funds intend to distribute substantially all of their investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.) Corporate investors may be
entitled to the dividends-received deduction on a portion of the dividends from
those Funds investing in the stock of domestic corporations.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends
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and capital gains paid during the prior year. Such dividends and capital gains
may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, 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 represent an ownership interest in a pool of mortgage
loans.
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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 GNMA, by FNMA and 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 on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
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.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
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
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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. For additional information concerning
mortgage-backed securities, see the related SAI.
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 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 or partnerships.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the 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
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motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other asset-backed securities, credit card receivables are unsecured obligations
of the card holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risk, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
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 a
Fund is 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 Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to
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repurchase the securities. In addition, there is a risk of delay in receiving
collateral or securities or in repurchasing the securities covered by the
reverse repurchase agreement or even of a loss of rights in the collateral or
securities in the event the buyer of the securities under the reverse repurchase
agreement files for bankruptcy or becomes insolvent. The Funds only enter into
reverse repurchase agreements (and repurchase agreements) with counterparties
that are deemed by the Adviser to be credit worthy. Reverse repurchase
agreements are speculative techniques involving leverage, and are subject to
asset coverage requirements if the Funds do not establish and maintain a
segregated account (as described above). 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 Fund's 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
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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. 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 will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted. The Funds will generally
not enter into forward contracts with terms of greater than one year.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect such Funds against adverse market movements by investing
in futures, options and other derivative instruments. These include the purchase
and writing of options on securities
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(including index options) and options on foreign currencies, and investing in
futures contracts for the purchase or sale of instruments based on financial
indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by such Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
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increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Nations Diversified Income Fund may invest in
lower-rated debt securities. Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. Each
Fund that may invest in lower-rated debt securities intends to limit their
investments in lower-quality debt securities to 35% of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: 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 varia-
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ble- 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.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax exempt leases. 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. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. 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.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. 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.
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.
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.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the
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failure of the seller to repurchase the securities as agreed, which may cause a
Fund to suffer a loss if the market value of such securities declines before
they can be liquidated on the open market. Repurchase agreements with a duration
of more than seven days are considered illiquid securities and are subject to
the limit stated above. A Fund may enter into joint repurchase agreements
jointly with other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of, and therefore backed by the full faith and
credit of, the U.S. Treasury, in some cases payment of interest and principal on
such obligations is guaranteed by the U.S. Government, E.G., GNMA certificates;
in other cases interest and principal are not guaranteed, E.G., obligations of
the Federal Home Loan Bank System and the Federal Farm Credit Bank. No assurance
can be given that the U.S. Government would provide financial support to
government-sponsored instrumentalities if it is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or spon-
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sored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB,B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to
40
<PAGE>
impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
41
<PAGE>
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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.
42
<PAGE>
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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
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
43
<PAGE>
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 three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk 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:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
44
<PAGE>
Prospectus
INVESTOR A SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Tax-Exempt Funds") of Nations
Fund Trust, an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the Tax-Exempt
Funds -- Investor A Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor A Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust, is
contained in a separate Statement of Additional
Information (the "SAI"), that has been filed with
the Securities and Exchange Commission (the "SEC")
and is available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAI bears the
same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is sub-
investment adviser to the Funds. As used herein the
"Adviser" shall mean NBAI and/or TradeStreet as the
context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TAX-EXEMPT FUNDS
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Municipal Income Fund
Nations Florida Intermediate
Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate
Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate
Municipal Bond Fund
Nations Maryland Municipal
Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Tennessee Municipal
Bond Fund
Nations Texas Intermediate
Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate
Municipal Bond Fund
Nations Virginia Municipal
Bond Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears
here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 6
Financial Highlights 11
Objectives 29
How Objectives Are Pursued 31
How Performance Is Shown 35
How The Funds Are Managed 36
Organization And History 40
About Your
Investment
How To Buy Shares 41
How To Redeem Shares 42
How To Exchange Shares 44
Shareholder Servicing And Distribution Plans 45
How The Funds Value Their Shares 47
How Dividends And Distributions Are Made;
Tax Information 47
Appendix A -- Portfolio Securities 49
Appendix B -- Description Of Ratings 55
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUNDS' SAI INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(BULLET) Nations Municipal Income Fund's investment objective is to seek
current income exempt from Federal income tax as is consistent with
prudent investment risk. Such Fund invests primarily in investment
grade obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their
political subdivisions, agencies, instrumentalities and authorities,
the interest on which, in the opinion of counsel to the issuer or
bond counsel, is exempt from Federal income tax.
(Bullet) Nations Short-Term Municipal Income Fund's investment objective is to
seek current income exempt from Federal income tax consistent with
minimal fluctuation of principal. Such Fund invests primarily in
investment grade obligations issued by or on behalf of states,
territories and possessions of the United States, the District of
Columbia, and their political subdivisions, agencies,
instrumentalities and authorities, the interest on which, in the
opinion of counsel to the issuer or bond counsel, is exempt from
Federal income tax.
(Bullet) Nations Intermediate Municipal Bond Fund's investment objective is to
seek current income exempt from Federal income tax consistent with
moderate fluctuation of principal.
(Bullet) Nations Florida Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal income tax
and the Florida state intangibles tax consistent with moderate
fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
(Bullet) Nations Florida Municipal Bond Fund's investment objective is to seek
current income exempt from Federal income tax and the Florida state
intangibles tax as is consistent with prudent investment risk by
investing primarily in long-term, investment grade municipal
securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and Georgia
state income taxes consistent with moderate fluctuation of principal
by investing primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations Georgia Municipal Bond Fund's investment objective is to seek
current income exempt from Federal and Georgia state income taxes as
is consistent with prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and Maryland
state income taxes consistent with moderate fluctuation of principal
by investing primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations Maryland Municipal Bond Fund's investment objective is to
seek current income exempt from Federal and Maryland state income
taxes as is consistent with prudent investment risk by investing
primarily in long-term, investment grade municipal securities.
3
<PAGE>
(Bullet) Nations North Carolina Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and North
Carolina state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment
grade municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's investment objective is
to seek current income exempt from Federal and North Carolina state
income taxes as is consistent with prudent investment risk by
investing primarily in long-term, investment grade municipal
securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and South
Carolina state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment
grade municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's investment objective is
to seek current income exempt from Federal and South Carolina state
income taxes as is consistent with prudent investment risk by
investing primarily in long-term, investment grade municipal
securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal income tax
and the Tennessee Hall income tax on unearned income consistent with
moderate fluctuation of principal by investing primarily in
intermediate term, investment grade municipal securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment objective is to
seek current income exempt from Federal income tax and the Tennessee
Hall income tax on unearned income consistent with prudent investment
risk by investing primarily in long-term, investment grade municipal
securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's investment objective
is to seek current income exempt from Federal income tax consistent
with moderate fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal securities.
(Bullet) Nations Texas Municipal Bond Fund's investment objective is to seek
current income exempt from Federal income tax as is consistent with
prudent investment risk by investing primarily in long-term,
investment grade municipal securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and Virginia
state income taxes consistent with moderate fluctuation of principal
by investing primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations Virginia Municipal Bond Fund's investment objective is to
seek current income exempt from Federal and Virginia state income
taxes as is consistent with prudent investment risk by investing
primarily in long-term, investment grade municipal securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities, including U.S. Government
Obligations, are sub-
<PAGE>
ject to interest rate risk, which is the risk that increases in market
interest rates will adversely affect a Fund's investments in debt
securities. The value of a Fund's investments in debt securities 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 which are not
backed by the United States Government are subject to credit risk,
which is the risk that the issuer may not be able to pay principal
and/or interest when due. Certain of the Funds' investments constitute
derivative securities. Certain types of derivative securities can,
under certain circumstances, significantly increase an investor's
exposure to market or other risks. Since the State Intermediate
Municipal Bond Funds and State Municipal Bond Funds invest primarily in
securities issued by entities located in a single state, such Funds are
more susceptible to changes in value due to political or economic
changes affecting such states or their subdivisions. For a discussion
of these and other factors, see "How Objectives Are Pursued -- Risk
Considerations" and "Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
$100 minimum subsequent investment (except for investments pursuant to
the Systematic Investment Plan). See "How To Buy Shares."
5
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in a Fund. The
following tables summarize shareholder transaction and operating expenses for
the Investor A Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor A Shares of a Fund
over specified periods.
INVESTOR A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Nations Nations Nations Florida Nations Georgia
SHAREHOLDER Short-Term Intermediate Nations Intermediate Nations Florida Intermediate
TRANSACTION Municipal Municipal Bond Municipal Municipal Bond Municipal Bond Municipal Bond
EXPENSES Income Fund Fund Income Fund Fund Fund Fund
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price) None None None None None None
Maximum Deferred Sales
Charge (as a
percentage of the
lower of the
original purchase
price or redemption
proceeds)1 None None None None None None
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After
Fee Waivers) .06% .17% .30% .14% .26% .17%
Rule 12b-1 Fees
(including
shareholder
servicing fees)
(After Fee Waivers) .20%2 .20% .20% .20% .20% .20%
Other Expenses (After
Expense
Reimbursements) .34% .33% .30% .36% .34% .33%
Total Operating
Expenses (After Fee
Waivers and Expense
Reimbursements) .60% .70% .80% .70% .80% .70%
<CAPTION>
SHAREHOLDER Nations Georgia
TRANSACTION Municipal Bond
EXPENSES Fund
Maximum Sales Load
Imposed on Purchases
(as a percentage of
offering price) None
Maximum Deferred Sales
Charge (as a
percentage of the
lower of the
original purchase
price or redemption
proceeds)1 None
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Management Fees (After
Fee Waivers) .10%
Rule 12b-1 Fees
(including
shareholder
servicing fees)
(After Fee Waivers) .20%
Other Expenses (After
Expense
Reimbursements) .50%
Total Operating
Expenses (After Fee
Waivers and Expense
Reimbursements) .80%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
2 Shareholder servicing fees for Nations Short-Term Municipal Income Fund are
paid pursuant to a separate Shareholder Servicing Plan. See "Shareholder
Servicing And Distribution Plans."
6
<PAGE>
INVESTOR A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations Nations Nations
Maryland Nations North Carolina Nations South Carolina
Intermediate Maryland Intermediate North Carolina Intermediate
SHAREHOLDER TRANSACTION Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
EXPENSES Fund Fund Fund Fund Fund
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None None None None None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None None None None None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .20% .12% .13% .23% .28%
Rule 12b-1 Fees (including
shareholder servicing fees)
(After Fee Waivers) .20% .20% .20% .20% .20%
Other Expenses (After Expense
Reimbursement) .30% .48% .37% .37% .32%
Total Operating Expenses (After
Fee Waivers and Expense
Reimbursements) .70% .80% .70% .80% .70%
<CAPTION>
Nations
South Carolina
SHAREHOLDER TRANSACTION Municipal Bond
EXPENSES Fund
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .10%
Rule 12b-1 Fees (including
shareholder servicing fees)
(After Fee Waivers) .20%
Other Expenses (After Expense
Reimbursement) .50%
Total Operating Expenses (After
Fee Waivers and Expense
Reimbursements) .80%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Nations Nations Nations
Tennessee Nations Texas Virginia
Intermediate Tennessee Intermediate Nations Intermediate
SHAREHOLDER TRANSACTION Municipal Bond Municipal Bond Municipal Bond Texas Municipal Municipal Bond
EXPENSES Fund Fund Fund Bond Fund Fund
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None None None None None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None None None None None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .07% .02% .11% .12% ,24%
Rule 12b-1 Fees (including
shareholder servicing fees)
(After Fee Waivers) .20% .20% .20% .20% .20%
Other Expenses (After Expense
Reimbursements) .43% .58% .39% .48% .26%
Total Operating Expenses (After
Fee Waivers and Expense
Reimbursements) .70% .80% .70% .80% .70%
<CAPTION>
Nations
Virginia
SHAREHOLDER TRANSACTION Municipal Bond
EXPENSES Fund
Maximum Sales Load Imposed on
Purchases (as a percentage of
offering price) None
Maximum Deferred Sales Charge (as
a percentage of the lower of
the original purchase price or
redemption proceeds)1 None
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers) .16%
Rule 12b-1 Fees (including
shareholder servicing fees)
(After Fee Waivers) .20%
Other Expenses (After Expense
Reimbursements) .14%
Total Operating Expenses (After
Fee Waivers and Expense
Reimbursements) .80%
</TABLE>
1 Investor A Shares that were purchased prior to January 1, 1996 remain subject
to the Deferred Sales Charge, if any, applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
EXAMPLES: You would pay the following expenses on a $1,000 investment in
Investor A Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
INVESTOR A SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Nations Nations Nations Florida Nations Georgia
Short-Term Intermediate Intermediate Nations Florida Intermediate
Municipal Income Municipal Bond Nations Municipal Municipal Bond Municipal Bond Municipal Bond
Fund Fund Income Fund Fund Fund Fund
1 Year $ 6 $ 7 $ 8 $ 7 $ 8 $ 7
3 Years $ 19 $ 21 $ 26 $ 22 $ 26 $ 22
5 Years $ 33 $ 36 $ 44 $ 39 $ 44 $ 39
10 Years $ 75 $ 81 $ 99 $ 87 $ 99 $ 87
<CAPTION>
Nations Maryland
Nations Georgia Intermediate
Municipal Bond Municipal Bond
Fund Fund
1 Year $ 8 $ 7
3 Years $ 26 $ 22
5 Years $ 44 $ 39
10 Years $ 99 $ 87
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Nations
Nations South Nations
North Carolina Nations Carolina South Nations Tennessee
Nations Maryland Intermediate North Carolina Intermediate Carolina Intermediate
Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
Fund Fund Fund Fund Fund Fund
1 Year $ 8 $ 7 $ 8 $ 7 $ 8 $ 7
3 Years $ 26 $ 22 $ 26 $ 22 $ 26 $ 22
5 Years $ 44 $ 39 $ 44 $ 39 $ 44 $ 39
10 Years $ 99 $ 87 $ 99 $ 87 $ 99 $ 87
<CAPTION>
Nations
Texas
Nations Tennessee Intermediate
Municipal Bond Municipal Bond
Fund Fund
1 Year $ 8 $ 7
3 Years $ 26 $ 22
5 Years $ 44 $ 39
10 Years $ 99 $ 87
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Nations Virginia
Nations Intermediate Nations Virginia
Texas Municipal Municipal Bond Municipal Bond
Bond Fund Fund Fund
1 Year $ 8 $ 7 $ 8
3 Years $ 26 $ 22 $ 26
5 Years $ 44 $ 39 $ 44
10 Years $ 99 $ 87 $ 99
<CAPTION>
1 Year
3 Years
5 Years
10 Years
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor A Shares of the Funds will bear either directly or indirectly. The
"Other Expenses" figures in the above tables for Investor A Shares of the
following Funds are based on estimated amounts for the Fund's current fiscal
year and reflect anticipated fee waivers and reimbursements: Nations Florida
Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations North
Carolina Intermediate Municipal Bond Fund, Nations North Carolina Municipal Bond
Fund, Nations South Carolina Municipal Bond Fund, Nations Tennessee Intermediate
Municipal Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Texas Municipal Bond Fund and Nations
Virginia Municipal Bond Fund. The figures for the other Funds reflect amounts
incurred during the Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. There is no assurance that
any fee waivers and reimbursements will continue beyond the current fiscal year.
If fee waivers and/or reimbursements are discontinued, the amounts contained in
the "Examples" above may increase. For more complete descriptions of the Funds'
operating expenses, see "How The Funds Are Managed." For a more complete
description of the Rule 12b-1 and shareholder servicing fees payable by the
Funds, see "Shareholder Servicing And Distribution Plans."
Absent fee waivers and reimbursements, "Management Fees," "Rule 12b-1 Fees",
"Other Expenses" and "Total Operating Expenses" for the Investor A Shares of the
Funds would have been as follows: Nations Municipal Income Fund -- .60%, .25%,
.30% and 1.15%, respectively; Nations Short-Term Municipal Income Fund -- .50%,
.25%, .34% and 1.09%, respectively; Nations Intermediate Municipal Bond
Fund -- .50%, .25%, .33% and 1.08%, respectively; Nations Florida Intermediate
Municipal Bond Fund -- .50%, .25%, .36% and 1.11%, respectively;, Nations
Georgia Intermediate Municipal Bond Fund -- .50%, .25%, .33% and 1.08%,
respectively, Nations Maryland Intermediate Municipal Bond Fund -- .50%, .25%,
.30% and 1.05%, respectively; Nations South Carolina Intermediate Municipal
9
<PAGE>
Bond Fund -- .50%, .25%, .32% and 1.07%, respectively; Nations Virginia
Intermediate Municipal Bond Fund -- .50%, .25%, .26% and 1.01%, respectively;
Nations North Carolina Intermediate Municipal Bond Fund -- .50%, .25%, .37% and
1.12%, respectively; Nations Tennessee Intermediate Municipal Bond Fund -- .50%,
.25%, .43% and 1.18%, respectively; Nations Texas Intermediate Municipal Bond
Fund -- .50%, .25%, .39% and 1.14%, respectively; Nations Florida Municipal Bond
Fund -- .60%, .25%, .34% and 1.19%, respectively; Nations Georgia Municipal Bond
Fund -- .60%, .25%, .50% and 1.35%, respectively; Nations Maryland Municipal
Bond Fund -- .60%, .25%, .48% and 1.33%, respectively; Nations North Carolina
Municipal Bond Fund -- .60%, .25%, .37% and 1.22%, respectively; Nations South
Carolina Municipal Bond Fund -- .60%, .25%, .50% and 1.35%, respectively;
Nations Tennessee Municipal Bond Fund -- .60%, .25%, .58% and 1.43%,
respectively; and Nations Texas Municipal Bond Fund -- .60%, .25%, .48%, and
1.33%, respectively; Nations Virginia Municipal Bond Fund -- .60%, .25%, .44%
and 1.29%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
10
<PAGE>
Financial Highlights
The following audited financial information has been derived from the financial
statements of Nations Fund Trust. Price Waterhouse LLP is the independent
accountant to Nations Fund Trust. The reports of Price Waterhouse LLP for
Nations Fund Trust's most recent fiscal year accompany the financial statements
for such period and are incorporated by reference in the SAI, which is available
upon request. Shareholders of a Fund will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by the Funds' independent accountant.
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR YEAR
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.69 $ 9.96
Net investment income 0.14 0.42 0.36
Net realized and unrealized gain/(loss) on investments (0.05) 0.34 (0.27)
Net increase in net asset value from operations 0.09 0.76 0.09
Distributions:
Dividends from net investment income (0.14) (0.42) (0.36)
Distributions from net realized capital gains -- -- (0.00)#
Total dividends and distributions (0.14) (0.42) (0.36)
Net asset value, end of period $ 9.98 $ 10.03 $ 9.69
Total return++ 0.90% 7.95% 0.90%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,599 $ 3,741 $ 217
Ratio of operating expenses to average net assets 0.60%+(a) 0.65%(a) 0.52%(a)
Ratio of net investment income to average net assets 4.17%+ 4.18% 3.65%
Portfolio turnover rate 16% 82% 57%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.06%+ 1.13% 0.99%
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.37 $ 0.33
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/93*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.98
Net investment income 0.03
Net realized and unrealized gain/(loss) on investments (0.02)
Net increase in net asset value from operations 0.01
Distributions:
Dividends from net investment income (0.03)
Distributions from net realized capital gains --
Total dividends and distributions (0.03)
Net asset value, end of period $ 9.96
Total return++ 0.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 731
Ratio of operating expenses to average net assets 0.24%+
Ratio of net investment income to average net assets 3.01%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.19%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.02
</TABLE>
* Nations Short-Term Municipal Income Fund's Investor A Shares commenced
operations on November 2, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
11
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.17 $ 9.24 $ 10.11 $ 10.10
Net investment income 0.15 0.47 0.42 0.12
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.86) 0.01
Net increase/(decrease) in net asset value from operations 0.01 1.40 (0.44) 0.13
Distributions:
Dividends from net investment income (0.15) (0.47) (0.42) (0.12)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.47) (0.43) (0.12)
Net asset value, end of period $ 10.03 $ 10.17 $ 9.24 $ 10.11
Total return++ 0.13% 15.38% (4.48)% 1.28%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,500 $ 1,249 $ 172 $ 68
Ratio of operating expenses to average net assets 0.70%+(a) 0.65%(a) 0.53%(a) 0.39%+
Ratio of net investment income to average net assets 4.55%+ 4.71% 4.41% 3.92%+
Portfolio turnover rate 4% 31% 51% 23%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.03%+ 1.04% 1.06% 1.11%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.44 $ 0.38 $ 0.10
</TABLE>
* Nations Intermediate Municipal Bond Fund's Investor A Shares commenced
operations on August 17, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
12
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92
<CAPTION>
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of
period $ 11.08 $ 9.64 $ 11.33 $ 10.65 $ 10.25
Net investment income 0.19 0.57 0.55 0.57 0.58
Net realized and unrealized
gain/(loss) on investments (0.24) 1.44 (1.44) 0.72 0.41
Net increase/(decrease) in net
asset value from operations (0.05) 2.01 (0.89) 1.29 0.99
Distributions:
Dividends from net investment
income (0.19) (0.57) (0.55) (0.57) (0.58)
Distributions in excess of net
investment income -- -- (0.00)# -- --
Distributions from net realized
capital gains -- -- (0.25) (0.04) (0.01)
Total dividends and distributions (0.19) (0.57) (0.80) (0.61) (0.59)
Net asset value, end of period $ 10.84 $ 11.08 $ 9.64 $ 11.33 $ 10.65
Total return++ (0.47)% 21.31% (8.34)% 12.37% 9.88%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 26,085 $ 27,963 $ 23,754 $ 28,415 $ 21,056
Ratio of operating expenses to
average net assets 0.80%+ 0.80% 0.79% 0.60% 0.52%
Ratio of operating expenses to
average net assets including
interest expense -- (a) --(a) 0.80% -- --
Ratio of net investment income to
average net assets 5.15%+ 5.43% 5.24% 5.09% 5.42%
Portfolio turnover rate 4% 49% 63% 48% 19%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.11%+ 1.08% 1.08% 0.99% 0.99%
Net investment income per share
without waivers and/or expense
reimbursements $ 0.18 $ 0.54 $ 0.52 $ 0.53 $ 0.53
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/91*
<S> <C>
Operating performance:
Net asset value, beginning of
period $ 10.00
Net investment income 0.52
Net realized and unrealized
gain/(loss) on investments 0.25
Net increase/(decrease) in net
asset value from operations 0.77
Distributions:
Dividends from net investment
income (0.52)
Distributions in excess of net
investment income --
Distributions from net realized
capital gains --
Total dividends and distributions (0.52)
Net asset value, end of period $ 10.25
Total return++ 7.87%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 7,234
Ratio of operating expenses to
average net assets 0.20%+
Ratio of operating expenses to
average net assets including
interest expense --
Ratio of net investment income to
average net assets 6.07%+
Portfolio turnover rate 54%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 0.88%+
Net investment income per share
without waivers and/or expense
reimbursements $ 0.45
</TABLE>
* Nations Municipal Income Fund's Investor A Shares commenced operations on
February 1, 1991.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
13
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.63 $ 9.61 $ 10.50 $ 9.99
Net investment income 0.16 0.46 0.43 0.42
Net realized and unrealized gain/(loss) on investments (0.17) 1.02 (0.88) 0.51
Net increase/(decrease) in net asset value from operations (0.01) 1.48 (0.45) 0.93
Distributions:
Dividends from net investment income (0.16) (0.46) (0.43) (0.42)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.16) (0.46) (0.44) (0.42)
Net asset value, end of period $ 10.46 $ 10.63 $ 9.61 $ 10.50
Total return++ (0.13)% 15.68% (4.43)% 9.44%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,029 $ 2,292 $ 2,114 $ 2,261
Ratio of operating expenses to average net assets 0.70%+(a) 0.75%(a) 0.73%(a) 0.59%+
Ratio of net investment income to average net assets 4.46%+ 4.50% 4.26% 4.13%+
Portfolio turnover rate 18% 27% 34% 15%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.06%+ 1.01% 0.94% 0.95%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.44 $ 0.41 $ 0.39
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund Investor A Shares commenced
operations on December 14, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
14
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS FLORIDA MUNICIPAL BOND FUND
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.76 $ 8.40 $ 9.98
Net investment income 0.15 0.49 0.47
Net realized and unrealized gain/(loss) on investments (0.29) 1.36 (1.58)
Net increase/(decrease) in net asset value from operations (0.14) 1.85 (1.11)
Dividends from net investment income (0.15) (0.49) (0.47)
Total dividends and distributions (0.15) (0.49) (0.47)
Net asset value, end of period $ 9.47 $ 9.76 $ 8.40
Total return++ (1.40)% 22.45% (11.35)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,836 $ 1,787 $ 1,024
Ratio of operating expenses to average net assets 0.80%+(a) 0.59%(a) 0.39%+(a)
Ratio of net investment income to average net assets 4.83%+ 5.24% 5.37%+
Portfolio turnover rate 7% 13% 46%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.16%+ 1.15% 1.09%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.14 $ 0.44 $ 0.42
</TABLE>
* Nations Florida Municipal Bond Fund Investor A Shares commenced operations on
December 10, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
15
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.81 $ 9.82 $ 10.82 $ 10.28
Net investment income 0.16 0.48 0.47 0.48
Net realized and unrealized gain/(loss) on
investments (0.18) 0.99 (0.98) 0.57
Net increase/(decrease) in net asset value from
operations (0.02) 1.47 (0.51) 1.05
Distributions:
Dividends from net investment income (0.16) (0.48) (0.47) (0.48)
Distributions in excess of net investment
income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.02) (0.03)
Total dividends and distributions (0.16) (0.48) (0.49) (0.51)
Net asset value, end of period $ 10.63 $ 10.81 $ 9.82 $ 10.82
Total return++ (0.19)% 15.20% (4.87)% 10.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,625 $ 9,175 $ 10,401 $ 16,752
Ratio of operating expenses to average net
assets 0.70%+ 0.75% 0.72% 0.61%
Ratio of operating expenses to average net
assets including interest expense --(a) --(a) 0.73% --
Ratio of net investment income to average net
assets 4.47%+ 4.56% 4.56% 4.42%
Portfolio turnover rate 3% 17% 22% 6%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.03%+ 1.00% 0.93% 0.92%
Net investment income per share without waivers
and/or expense reimbursements $ 0.15 $ 0.45 $ 0.45 $ 0.45
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.98
Net investment income 0.30
Net realized and unrealized gain/(loss) on
investments 0.30
Net increase/(decrease) in net asset value from
operations 0.60
Distributions:
Dividends from net investment income (0.30)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.30)
Net asset value, end of period $ 10.28
Total return++ 6.12%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,809
Ratio of operating expenses to average net
assets 0.34%+
Ratio of operating expenses to average net
assets including interest expense --
Ratio of net investment income to average net
assets 5.01%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 0.91%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.27
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Investor A Shares commenced
operations on May 4, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
16
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS GEORGIA MUNICIPAL BOND FUND
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.72 $ 8.38 $ 9.99
Net investment income 0.14 0.49 0.47
Net realized and unrealized gain/(loss) on investments (0.24) 1.34 (1.61)
Net increase/(decrease) in net asset value from operations (0.10) 1.83 (1.14)
Dividends from net investment income (0.14) (0.49) (0.47)
Total dividends and distributions (0.14) (0.49) (0.47)
Net asset value, end of period $ 9.48 $ 9.72 $ 8.38
Total return++ (1.08)% 22.25% (11.71)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7 $ 7 $ 6
Ratio of operating expenses to average net assets 0.80%+(a) 0.60%(a) 0.39%+(a)
Ratio of net investment income to average net assets 4.76%+ 5.22% 5.42%+
Portfolio turnover rate 7% 26% 35%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.34%+ 1.29% 1.22%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12 $ 0.42 $ 0.40
</TABLE>
* Nations Georgia Municipal Bond Fund Investor A Shares commenced operations on
December 30, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
17
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
Operating
performance:
Net asset value,
beginning of
period $ 10.95 $ 10.00 $ 11.09 $ 10.72 $ 10.44 $ 10.21
Net investment
income 0.16 0.48 0.48 0.51 0.54 0.60
Net realized and
unrealized
gain/(loss) on
investments (0.15) 0.98 (0.99) 0.44 0.31 0.24
Net
increase/(decrease)
in net asset value
from operations 0.01 1.46 (0.51) 0.95 0.85 0.84
Distributions:
Dividends from net
investment income (0.16) (0.48) (0.48) (0.51) (0.54) (0.60)
Distributions from
net realized
capital gains -- (0.03) (0.10) (0.07) (0.03) (0.01)
Distributions in
excess of net
realized capital
gains -- -- (0.00)# -- -- --
Total dividends and
distributions (0.16) (0.51) (0.58) (0.58) (0.57) (0.61)
Net asset value, end
of period $ 10.80 $ 10.95 $ 10.00 $ 11.09 $ 10.72 $ 10.44
Total return++ 0.09% 14.94% (4.82)% 8.96% 8.32%+++ 8.46%+++
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 19,456 $ 21,208 $ 22,145 $ 22,144 $ 20,092 $ 9,934
Ratio of operating
expenses to
average net assets 0.70%+(a) 0.75%(a) 0.71%(a) 0.64% 0.48% 0.20%
Ratio of net
investment income
to average net
assets 4.42%+ 4.56% 4.55% 4.58% 4.98% 5.76%
Portfolio turnover
rate 4% 11% 22% 26% 38% 26%
Ratio of operating
expenses to
average net assets
without waivers
and/or expense
reimbursements 1.01%+ 1.00% 0.91% 0.88% 0.87% 0.71%
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.15 $ 0.45 $ 0.46 $ 0.48 $ 0.50 $ 0.55
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/90*
<S> <C>
Operating
performance:
Net asset value,
beginning of
period $ 10.00
Net investment
income 0.16
Net realized and
unrealized
gain/(loss) on
investments 0.21
Net
increase/(decrease)
in net asset value
from operations 0.37
Distributions:
Dividends from net
investment income (0.16)
Distributions from
net realized
capital gains --
Distributions in
excess of net
realized capital
gains --
Total dividends and
distributions (0.16)
Net asset value, end
of period $ 10.21
Total return++ 3.72%+++
Ratios to average
net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 2,228
Ratio of operating
expenses to
average net assets 0.21%+
Ratio of net
investment income
to average net
assets 6.12%+
Portfolio turnover
rate 49%
Ratio of operating
expenses to
average net assets
without waivers
and/or expense
reimbursements 0.84%+
Net investment
income per share
without waivers
and/or expense
reimbursements $ 0.13
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Investor A Shares
commenced operations on September 1, 1990.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
18
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.63 $ 8.37 $ 9.77 $ 9.80
Net investment income 0.14 0.46 0.49 0.03
Net realized and unrealized gain/(loss) on investments (0.24) 1.26 (1.40) (0.03)
Net increase/(decrease) in net asset value from operations (0.10) 1.72 (0.91) 0.00
Dividends from net investment income (0.14) (0.46) (0.49) (0.03)
Total dividends and distributions (0.14) (0.46) (0.49) (0.03)
Net asset value, end of period $ 9.39 $ 9.63 $ 8.37 $ 9.77
Total return++ (1.01)% 20.99% (9.59)% 0.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,086 $ 1,031 $ 9 $ 6
Ratio of operating expenses to average net assets 0.80%+ 0.60% 0.39%(a) 0.13%+
Ratio of net investment income to average net assets 4.52%+ 4.94% 5.30% 3.97%+
Portfolio turnover rate 7% 11% 39% 1%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.43%+ 1.46% 1.48% 1.76%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.38 $ 0.41 $ 0.02
</TABLE>
* Nations Maryland Municipal Bond Fund Investor A Shares commenced operations
on November 4, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
19
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.51 $ 9.53 $ 10.46 $ 10.01
Net investment income 0.15 0.43 0.42 0.42
Net realized and unrealized gain/(loss) on investments (0.15) 0.99 (0.88) 0.45
Net increase/(decrease) in net asset value from operations 0.00 1.42 (0.46) 0.87
Distributions:
Dividends from net investment income (0.15) (0.43) (0.42) (0.42)
Distributions in excess of net investment income -- (0.00)# -- --
Distributions from net realized capital gains -- (0.01) (0.05) --
Total dividends and distributions (0.15) (0.44) (0.47) (0.42)
Net asset value, end of period $ 10.36 $ 10.51 $ 9.53 $ 10.46
Total return++ (0.01)% 15.18% (4.51)% 8.76%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,672 $ 8,525 $ 8,896 $ 13,749
Ratio of operating expenses to average net assets 0.70%+ 0.77%(a) 0.73%(a) 0.57%+
Ratio of net investment income to average net assets 4.27%+ 4.27% 4.20% 4.08%+
Portfolio turnover rate 3% 57% 37% 29%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.07%+ 1.04% 1.00% 1.00%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.41 $ 0.40 $ 0.38
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Investor A Shares
commenced operations on December 14, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
20
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.73 $ 8.36 $ 9.85 $ 9.97
Net investment income 0.15 0.49 0.50 0.04
Net realized and unrealized gain/(loss) on investments (0.24) 1.37 (1.49) (0.12)
Net increase/(decrease) in net asset value from operations (0.09) 1.86 (0.99) (0.08)
Dividends from net investment income (0.15) (0.49) (0.50) (0.04)
Total dividends and distributions (0.15) (0.49) (0.50) (0.04)
Net asset value, end of period $ 9.49 $ 9.73 $ 8.36 $ 9.85
Total return++ (0.94)% 22.63% (10.41)% (0.80)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 448 $ 347 $ 1,161 $ 1,085
Ratio of operating expenses to average net assets 0.80%+ 0.58%(a) 0.39%(a) 0.09%+
Ratio of net investment income to average net assets 4.66%+ 5.23% 5.35% 3.97%+
Portfolio turnover rate 22% 40% 29% 10%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.19%+ 1.16% 1.10% 1.21%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.44 $ 0.43 $ 0.03
</TABLE>
* Nations North Carolina Municipal Bond Fund Investor A Shares commenced
operations on November 1, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
21
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92*
Operating performance:
Net asset value, beginning of
period $ 10.69 $ 9.76 $ 10.61 $ 10.18 $ 9.98
Net investment income 0.16 0.49 0.48 0.48 0.30
Net realized and unrealized
gain/(loss) on investments (0.17) 0.93 (0.84) 0.43 0.20
Net increase/(decrease) in net
asset value from operations (0.01) 1.42 (0.36) 0.91 0.50
Distributions:
Dividends from net investment
income (0.16) (0.49) (0.48) (0.48) (0.30)
Distributions in excess of net
investment income -- -- (0.00)# -- --
Distributions from net realized
capital gains -- -- (0.01) -- --
Total dividends and distributions (0.16) (0.49) (0.49) (0.48) (0.30)
Net asset value, end of period $ 10.52 $ 10.69 $ 9.76 $ 10.61 $ 10.18
Total return++ (0.07)% 14.79% (3.54)% 9.16% 5.03%+++
Ratios to average net
assets/supplemental data:
Net assets, end of period (in
000's) $ 14,288 $ 14,452 $ 16,378 $ 20,024 $ 7,414
Ratio of operating expenses to
average net assets 0.70%+(a) 0.75%(a) 0.72%(a) 0.60% 0.33%+
Ratio of net investment income to
average net assets 4.61%+ 4.72% 4.64% 4.53% 4.83%+
Portfolio turnover rate 6% 11% 30% 11% 7%
Ratio of operating expenses to
average net assets without
waivers and/or expense
reimbursements 1.02%+ 0.95% 0.93% 0.90% 0.85%+
Net investment income per share
without waivers and/or expense
reimbursements $ 0.15 $ 0.47 $ 0.46 $ 0.45 $ 0.27
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Investor A Shares
commenced operations on May 5, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest on the operating expense ratio was less than 0.01%.
(b) Fiscal year changed to March 31. Prior to this, the fiscal year end was
November 30.
22
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.99 $ 8.65 $ 9.86 $ 9.87
Net investment income 0.16 0.50 0.50 0.03
Net realized and unrealized gain/(loss) on investments (0.22) 1.34 (1.21) (0.01)
Net increase/(decrease) in net asset value from operations (0.06) 1.84 (0.71) 0.02
Dividends from net investment income (0.16) (0.50) (0.50) (0.03)
Total dividends and distributions (0.16) (0.50) (0.50) (0.03)
Net asset value, end of period $ 9.77 $ 9.99 $ 8.65 $ 9.86
Total return++ (0.64)% 21.74% (7.45)% 0.21%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,219 $ 1,238 $ 140 $ 14
Ratio of operating expenses to average net assets 0.80%+(a) 0.60%(a) 0.39%(a) 0.10%+
Ratio of net investment income to average net assets 4.76%+ 5.24% 5.30% 4.16%+
Portfolio turnover rate 20% 13% 14% 8%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.33%+ 1.28% 1.30% 1.63%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.44 $ 0.42 $ 0.02
</TABLE>
* Nations South Carolina Municipal Bond Fund Investor A Shares commenced
operations on November 8, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
23
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<CAPTION>
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.23 $ 9.30 $ 10.18 $ 10.00
Net investment income 0.15 0.44 0.43 0.29
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.87) 0.18
Net increase/(decrease) in net asset value from operations 0.01 1.37 (0.44) 0.47
Distributions:
Dividends from net investment income (0.15) (0.44) (0.43) (0.29)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.44) (0.44) (0.29)
Net asset value, end of period $ 10.09 $ 10.23 $ 9.30 $ 10.18
Total return++ 0.06% 15.00% (4.41)% 4.68%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,439 $ 7,573 $ 7,831 $ 15,573
Ratio of operating expenses to average net assets 0.70%+ 0.77% 0.70% 0.42%+
Ratio of operating expenses to average net assets including
interest expense -- --(a) 0.71% --
Ratio of net investment income to average net assets 4.31%+ 4.45% 4.38% 4.16%+
Portfolio turnover rate 3% 34% 41% 16%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.22%+ 1.12% 1.07% 1.09%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.41 $ 0.40 $ 0.24
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund Investor A Shares
commenced operations on April 2, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
24
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.87 $ 8.58 $ 9.80 $ 9.88
Net investment income 0.15 0.50 0.50 0.04
Net realized and unrealized gain/(loss) on investments (0.19) 1.29 (1.22) (0.08)
Net increase/(decrease) in net asset value from operations (0.04) 1.79 (0.72) (0.04)
Dividends from net investment income (0.15) (0.50) (0.50) (0.04)
Total dividends and distributions (0.15) (0.50) (0.50) (0.04)
Net asset value, end of period $ 9.68 $ 9.87 $ 8.58 $ 9.80
Total return++ (0.37)% 21.28% (7.58)% (0.43)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 973 $ 203 $ 43 $ 34
Ratio of operating expenses to average net assets 0.80%+ 0.60%(a) 0.39%(a) 0.17%+
Ratio of operating expenses to average net assets including
interest expense 0.81%+ -- -- --
Ratio of net investment income to average net assets 4.72%+ 5.29% 5.38% 4.31%+
Portfolio turnover rate 2% 45% 38% 3%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.67%+ 1.47% 1.38% 1.86%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.42 $ 0.42 $ 0.03
</TABLE>
* Nations Tennessee Municipal Bond Fund Investor A Shares commenced operations
on November 2, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
25
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.36 $ 9.53 $ 10.35 $ 10.15
Net investment income 0.15 0.44 0.42 0.37
Net realized and unrealized gain/(loss) on investments (0.15) 0.83 (0.79) 0.20
Net increase/(decrease) in net asset value from operations 0.00 1.27 (0.37) 0.57
Distributions:
Dividends from net investment income (0.15) (0.44) (0.42) (0.37)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.03) --
Total dividends and distributions (0.15) (0.44) (0.45) (0.37)
Net asset value, end of period $ 10.21 $ 10.36 $ 9.53 $ 10.35
Total return++ (0.02)% 13.60% (3.66)% 5.64%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 801 $ 806 $ 718 $ 968
Ratio of operating expenses to average net assets 0.70%+ 0.77%(a) 0.73%(a) 0.59%+
Ratio of net investment income to average net assets 4.32%+ 4.42% 4.22% 4.28%+
Portfolio turnover rate 11% 64% 61% 63%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.09%+ 1.03% 0.96% 0.97%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.42 $ 0.40 $ 0.34
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund Investor A Shares commenced
operations on February 4, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
26
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.70 $ 8.39 $ 9.92
Net investment income 0.15 0.49 0.47
Net realized and unrealized gain/(loss) on investments (0.21) 1.31 (1.53)
Net increase/(decrease) in net asset value from operations (0.06) 1.80 (1.06)
Dividends from net investment income (0.15) (0.49) (0.47)
Total dividends and distributions (0.15) (0.49) (0.47)
Net asset value, end of period $ 9.49 $ 9.70 $ 8.39
Total return++ (0.62)% 21.85% (10.98)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 317 $ 351 $ 55
Ratio of operating expenses to average net assets 0.80%+ 0.59%(a) 0.40%+(a)
Ratio of net investment income to average net assets 4.72%+ 5.25% 5.34%+
Portfolio turnover rate 6% 50% 107%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.31%+ 1.25% 1.24%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.43 $ 0.39
</TABLE>
* Nations Texas Municipal Bond Fund Investor A Shares commenced operations on
December 17, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
27
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93 11/30/92 11/30/91
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Operating performance:
Net asset value,
beginning of period $ 10.83 $ 9.94 $ 10.99 $ 10.59 $ 10.34 $ 10.14
Net investment income 0.16 0.49 0.48 0.51 0.54 0.58
Net realized and
unrealized
gain/(loss) on
investments (0.14) 0.89 (0.96) 0.42 0.29 0.21
Net
increase/(decrease)
in net asset value
from operations 0.02 1.38 (0.48) 0.93 0.83 0.79
Distributions:
Dividends from net
investment income (0.16) (0.49) (0.48) (0.51) (0.54) (0.58)
Distributions from net
realized capital
gains -- (0.00)# (0.09) (0.02) (0.04) (0.01)
Distributions in
excess of net
realized capital
gains -- -- (0.00)# -- -- --
Total dividends and
distributions (0.16) (0.49) (0.57) (0.53) (0.58) (0.59)
Net asset value, end
of period $ 10.69 $ 10.83 $ 9.94 $ 10.99 $ 10.59 $ 10.34
Total return++ 0.20% 14.16% (4.52)% 8.91% 8.18%+++ 8.04%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 68,003 $ 73,253 $ 79,412 $ 103,689 $ 76,650 $ 44,540
Ratio of operating
expenses to average
net assets 0.70%+(a) 0.76%(a) 0.79%(a) 0.72% 0.65% 0.45%
Ratio of net
investment income to
average net assets 4.52%+ 4.67% 4.58% 4.65% 5.04% 5.67%
Portfolio turnover
rate 2% 22% 14% 26% 13% 24%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 0.96%+ 0.94% 0.91% 0.84% 0.97% 0.73%
Net investment income
per share without
waivers and/or
expense
reimbursements $ 0.15 $ 0.47 $ 0.47 $ 0.49 $ 0.50 $ 0.55
<CAPTION>
PERIOD
ENDED
INVESTOR A SHARES 11/30/90*
<S> <C>
Operating performance:
Net asset value,
beginning of period $ 10.08
Net investment income 0.61
Net realized and
unrealized
gain/(loss) on
investments 0.11
Net
increase/(decrease)
in net asset value
from operations 0.72
Distributions:
Dividends from net
investment income (0.66)
Distributions from net
realized capital
gains --
Distributions in
excess of net
realized capital
gains --
Total dividends and
distributions (0.66)
Net asset value, end
of period $ 10.14
Total return++ 7.41%+++
Ratios to average net
assets/supplemental
data:
Net assets, end of
period (in 000's) $ 24,303
Ratio of operating
expenses to average
net assets 0.26%+
Ratio of net
investment income to
average net assets 6.09%+
Portfolio turnover
rate 19%
Ratio of operating
expenses to average
net assets without
waivers and/or
expense
reimbursements 0.80% +
Net investment income
per share without
waivers and/or
expense
reimbursements $ 0.55
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Investor A Shares
commenced operations on December 5, 1989.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
28
<PAGE>
FOR AN INVESTOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR A SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
Operating performance:
Net asset value, beginning of period $ 9.62 $ 8.29 $ 9.77 $ 9.84
Net investment income 0.16 0.49 0.49 0.03
Net realized and unrealized gain/(loss) on investments (0.24) 1.33 (1.48) (0.07)
Net increase/(decrease) in net asset value from operations (0.08) 1.82 (0.99) (0.04)
Dividends from net investment income (0.16) (0.49) (0.49) (0.03)
Total dividends and distributions (0.16) (0.49) (0.49) (0.03)
Net asset value, end of period $ 9.38 $ 9.62 $ 8.29 $ 9.77
Total return++ (0.91)% 22.39% (10.44)% (0.42)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 661 $ 650 $ 168 $ 25
Ratio of operating expenses to average net assets 0.80%+ 0.59%(a) 0.39%(a) 0.10%+
Ratio of operating expenses to average net assets including
interest expense 0.81%+ -- -- --
Ratio of net investment income to average net assets 4.86%+ 5.31% 5.34% 3.88%+
Portfolio turnover rate 8% 16% 61% 0%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.27%+ 1.24% 1.17% 1.30%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.44 $ 0.43 $ 0.02
</TABLE>
* Nations Virginia Municipal Bond Fund Investor A Shares commenced operations
on November 8, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS MUNICIPAL INCOME FUND: The investment objective of Nations Municipal
Income Fund is to seek current income exempt from Federal income tax, consistent
with prudent investment risk.
NATIONS SHORT-TERM MUNICIPAL INCOME FUND: The investment objective of Nations
Short-Term Municipal Income Fund is to seek current income exempt from Federal
income tax consistent with minimal fluctuation of principal.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Nations Intermediate Municipal Bond
Fund's investment objective is to seek current income exempt from Federal income
tax consistent with moderate fluctuation of principal.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal income tax and the Florida state intangibles tax consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS FLORIDA MUNICIPAL BOND FUND: Nations Florida Municipal Bond Fund's
investment objective is to seek current income exempt
29
<PAGE>
from Federal income tax and the Florida state intangibles tax, consistent with
prudent investment risk, by investing primarily in long-term, investment grade
municipal securities.
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Georgia Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Georgia state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
NATIONS GEORGIA MUNICIPAL BOND FUND: Nations Georgia Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Georgia
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Maryland state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
NATIONS MARYLAND MUNICIPAL BOND FUND: Nations Maryland Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Maryland
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND: Nations North Carolina Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
and North Carolina state income taxes, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND: Nations South Carolina Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
and South Carolina state income taxes, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade municipal securities.
NATIONS TENNESSEE MUNICIPAL BOND FUND: Nations Tennessee Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax
and the Tennessee Hall Income Tax on unearned income consistent with prudent
investment risk by investing primarily in long-term, investment grade municipal
securities.
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal income tax consistent with moderate fluctuation of principal by
investing primarily in intermediate-term, investment grade municipal securities.
NATIONS TEXAS MUNICIPAL BOND FUND: Nations Texas Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax,
consistent with prudent investment risk, by investing primarily in
30
<PAGE>
long-term, investment grade municipal securities.
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Virginia state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
NATIONS VIRGINIA MUNICIPAL BOND FUND: Nations Virginia Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Virginia
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund and Nations Virginia
Intermediate Municipal Bond Fund are sometimes collectively referred to as the
"State Intermediate Municipal Bond Funds," and Nations Florida Municipal Bond
Fund, Nations Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations North Carolina Municipal Bond Fund, Nations South Carolina Municipal
Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas Municipal Bond
Fund and Nations Virginia Municipal Bond Fund are sometimes collectively
referred to as the "State Municipal Bond Funds".
How Objectives Are Pursued
NATIONS SHORT-TERM MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND
FUND AND NATIONS MUNICIPAL INCOME FUND: In pursuing their objectives, the Funds
will invest at least 80% of the total value of their assets in investment grade
obligations issued by or on behalf of states, territories, and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities, and authorities, the interest on which, in the
opinion of counsel to the issuer or bond counsel, is exempt from Federal income
tax ("Municipal Securities"). To the extent consistent with the Funds'
investment approach described in this Prospectus, the Funds are managed to seek
capital appreciation and minimize capital losses due to interest rate movements.
Under normal market conditions, the average weighted maturity and duration of
each of the Funds' portfolios are expected to be as follows: Nations Municipal
Income Fund -- average weighted maturity greater than 10 years and duration
between 7.5 and 9.5 years; Nations Intermediate Municipal Bond Fund -- average
weighted maturity between three and 10 years and duration between five and six
years; Nations Short-Term Municipal Income Fund -- average weighted maturity
less than three years and duration between 1.25 and 2.75 years.
Municipal securities will be rated investment grade at the time of purchase by
at least one of the following nationally recognized statistical rating
organizations: Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors
Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc. (collectively
"IBCA"), or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs") or,
if unrated, determined by the Adviser to be of comparable quality at the time of
purchase to rated obligations that may be acquired by a Fund. Obligations rated
in the lowest of the top four investment grade rating categories (E.G. rated
"BBB" by S&P or "Baa" by Moody's) have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make
31
<PAGE>
principal and interest payments than is the case with higher grade debt
obligations. 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 a Fund. The Adviser will consider such an event
in determining whether a Fund should continue to hold the obligation. See
"Appendix B" for a description of these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by a Fund include repurchase agreements and short-term debt
securities. Under normal market conditions, each Fund's investments in taxable
obligations and private activity bonds, the interest on which may be treated as
a specific tax preference item under the Federal alternative minimum tax, will
not exceed 20% of its total assets at the time of purchase. The Funds may hold
uninvested cash reserves pending investment or during defensive periods.
STATE INTERMEDIATE MUNICIPAL BOND FUNDS AND STATE MUNICIPAL BOND FUNDS: Under
normal market conditions, at least 80% of the total value of the assets of the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
be invested in Municipal Securities, and substantially all of each Fund's assets
will be invested in debt instruments, issued by or on behalf of the pertinent
state and its political subdivisions, agencies, instrumentalities and
authorities. Under normal market conditions, the average weighted maturity and
duration of each of the State Intermediate Municipal Bond Funds and State
Municipal Bond Funds are expected to be as follows: State Intermediate Municipal
Bond Funds -- average weighted maturity between three and 10 years and duration
between five and six years; State Municipal Bond Funds -- average weighted
maturity greater than 10 years and duration greater than 10 years.
Each of the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds operates as a non-diversified fund (except to the extent diversification
is required for Federal income tax purposes).
Dividends paid by each of these Funds which are derived from interest
attributable to tax-exempt obligations of the pertinent state and that state's
political subdivisions, agencies, instrumentalities and authorities, as well as
certain other governmental issuers such as Puerto Rico, will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state. Texas and Florida do not impose a state
income tax; however, Florida imposes a state intangibles tax. Dividends derived
from interest on obligations of other governmental issuers will be exempt from
regular Federal income tax, but generally will be subject to state income tax
(with the exception of Texas and Florida). (See "How Dividends And Distributions
Are Made; Tax Information.") During normal market conditions and as a matter of
fundamental investment policy, each of these Funds will invest at least 80% of
its total assets in obligations the interest on which will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state.
Municipal Securities acquired by the Funds will be rated investment grade at the
time of purchase by at least one NRSRO or, if unrated, determined by the Adviser
to be of comparable quality at the time of purchase to rated obligations that
may be acquired by the Funds. Obligations rated in the lowest of the top four
investment grade rating categories (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
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 a Fund. The Adviser will consider such an event in determining
whether a Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
32
<PAGE>
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by the Funds include repurchase agreements and short-term
debt securities. Under normal market conditions, each Fund's investments in
taxable obligations and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax, will not exceed 20% of its total assets at the time of purchase.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: interest rate swaps, caps and floors for hedging purposes;
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S. and
foreign exchange-traded financial futures and options thereon approved by the
Commodity Futures Trading Commission ("CFTC") for market exposure risk
management. Each Fund also may lend its portfolio securities to qualified
institutional investors and may invest in restricted, private placement and
other illiquid securities. Additionally, each Fund may purchase securities
issued by other investment companies, consistent with the Fund's investment
objective 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 or partnerships.
Certain government securities that have variable or floating interest rates or
demand, put or prepayment features or paydown schedules may be deemed to have
remaining maturities shorter than their nominal maturities for purposes of
determining the average weighted maturity and duration of the Funds.
For more information concerning these and other investments in which the Funds
may invest and the Funds' investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the 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 Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
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. Since each of the State
Intermediate Municipal Bond Funds and State Municipal Bond Funds invests
primarily in securities issued by entities located in a single state, such Funds
are more susceptible to changes in value due to political or economic changes
affecting that state or its subdivisions.
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 Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the 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
33
<PAGE>
instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund 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.
Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond
Fund and Nations Municipal Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's
total assets would be invested in the securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to these limitations and with respect to 75% of such Fund's
assets, such Fund will not hold more than 10% of the voting securities of
any issuer.
The State Intermediate Municipal Bond Funds and the State Municipal Bond Funds
may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of a Fund's
total assets would be invested in the securities of one issuer, and with
respect to 50% of such Fund's total assets, more than 5% of its assets
would be invested in the securities of one issuer.
As a matter of fundamental policy, except during defensive periods, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds will invest
at least 80% of their respective total net assets in Municipal Securities the
interest on which is exempt from Federal income taxes and the pertinent state's
income taxes (with the exception of Texas and Florida). Similarly, as a matter
of fundamental policy, except during defensive periods, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund and Nations
Municipal Income Fund will invest at least 80% of their respective total net
assets in Municipal Securities the interest on which is exempt from Federal
income tax. For purposes of these fundamental policies, private activity bonds
are included in the term "Municipal Securities" only if the interest paid
thereon is exempt from Federal income tax and not treated as a specific tax
preference item under the Federal alternative minimum tax.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current positions
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
34
<PAGE>
How Performance Is Shown
From time to time a Fund may advertise the total return, yield and
tax-equivalent yield on a class of shares. TOTAL RETURN, YIELD AND TAX-
EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "total return" of a class of shares of a Fund
may be calculated on an average annual total return basis or an aggregate total
return basis. Average annual total return refers to the average annual
compounded rates of return on a class of shares over one-, five-, and ten-year
periods or the life of a Fund (as stated in the advertisement) that would equate
an initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gains distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
The "tax-equivalent yield" of a class of shares of a Fund also may be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to the particular class's tax-free yield. This is done by
increasing such class's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor A Shares, the Funds offer Primary A, Primary B, Investor
C and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such charges were reflected. Any fees charged by a selling
agent and/or servicing agent directly to its customers' accounts in connection
with investments in the Funds will not be included in calculations of total
return or yield. The Funds' annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or your selling agent.
35
<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Trustees. The SAI contains the names of and general background
information concerning the Trustees of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc., serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals,
corporations, and institutions.
Subject to the general supervision of the Trustees of Nations Fund Trust, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Funds, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with their investment objectives, policies and restrictions, the Funds may
invest in securities of companies with which NationsBank has a lending
relationship. For the services provided and expenses assumed pursuant to an
Investment Advisory Agreement, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.50% of the average
daily net assets of each of Nations Short-Term Municipal Income Fund, Nations
Intermediate Municipal Bond Fund and the State Intermediate Municipal Bond
Funds; and 0.60% of the average daily net assets of each of Nations Municipal
Income Fund and the State Municipal Bond Funds.
For the services provided and the expenses assumed pursuant to a sub-advisory
agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.07% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund. In addition, the Adviser may from time to time
compensate Agents, as defined below, for providing certain services to
Customers.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Municipal Income Fund -- 0.30%; Nations Short-Term Municipal
Income Fund -- 0.06%; Nations Intermediate Municipal Bond Fund -- 0.17%; Nations
Florida Intermediate Municipal Bond Fund -- 0.14%; Nations Florida Municipal
Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal Bond
36
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Fund -- 0.17%; Nations Georgia Municipal Bond Fund -- 0.10%; Nations Maryland
Intermediate Municipal Bond Fund -- 0.20%; Nations Maryland Municipal Bond
Fund -- 0%; Nations North Carolina Intermediate Municipal Bond Fund -- 0.13%;
Nations North Carolina Municipal Bond Fund -- 0.23%; Nations South Carolina
Intermediate Municipal Bond Fund -- 0.18%; Nations South Carolina Municipal Bond
Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond Fund 0%; Nations
Tennessee Municipal Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond
Fund -- 0.11%; Nations Texas Municipal Bond Fund -- 0.12%; Nations Virginia
Intermediate Municipal Bond Fund -- 0.24%; and Nations Virginia Municipal Bond
Fund -- 0.16%
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Municipal Income Fund -- 0.30%; Nations Short-Term Municipal
Income Fund -- 0.06%; Nations Intermediate Municipal Bond Fund -- 0.17%; Nations
Florida Intermediate Municipal Bond Fund -- 0.14%; Nations Florida Municipal
Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal Bond Fund -- 0.17%;
Nations Georgia Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate
Municipal Bond Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0%;
Nations North Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North
Carolina Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate
Municipal Bond Fund -- 0.18%; Nations South Carolina Municipal Bond
Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond Fund -- 0%; Nations
Tennessee Municipal Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond
Fund -- 0.11%; Nations Texas Municipal Bond Fund -- 0.12%; Nations Virginia
Intermediate Municipal Bond Fund -- 0.24%; and Nations Virginia Municipal Bond
Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Municipal Income Fund -- 0.07%; Nations Short-Term Municipal Income
Fund -- 0.07%; Nations Intermediate Municipal Bond Fund -- 0.07%; Nations
Florida Intermediate Municipal Bond Fund -- 0.07%; Nations Florida Municipal
Bond Fund -- 0.07%; Nations Georgia Intermediate Municipal Bond Fund -- 0.07%;
Nations Georgia Municipal Bond Fund -- 0.07%; Nations Maryland Intermediate
Municipal Bond Fund -- 0.07%; Nations Maryland Municipal Bond Fund -- 0.07%;
Nations North Carolina Intermediate Municipal Bond Fund -- 0.07%; Nations North
Carolina Municipal Bond Fund -- 0.07%; Nations South Carolina Intermediate
Municipal Bond Fund -- 0.07%; Nations South Carolina Municipal Bond
Fund -- 0.07%; Nations Tennessee Intermediate Municipal Bond Fund -- 0.07%;
Nations Tennessee Municipal Bond Fund -- 0.07%; Nations Texas Intermediate
Municipal Bond Fund -- 0.07%; Nations Texas Municipal Bond Fund -- 0.07%;
Nations Virginia Intermediate Municipal Bond Fund -- 0.07%; and Nations Virginia
Municipal Bond Fund -- 0.07%.
Michele M. Poirier is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and Senior Portfolio Manager for Nations Municipal
Income Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond
Fund and Nations South Carolina Municipal Bond Fund. Ms. Poirier has been the
Portfolio Manager for Nations Municipal Income Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond
Fund, and South Carolina Intermediate Municipal Bond Fund since 1992. She has
been Portfolio Manager for the other Funds since 1993. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. She has worked in
the investment community since 1974. Her past experience includes serving as
Director of Trading, Institutional Sales, and
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Municipal Trader for Financial Service Corporation, Bankers Trust Company and
The Robinson-Humphrey Company respectively. Ms. Poirier received a B.B.A. in
Marketing from Georgia State University.
Mathew M. Kiselak is a Product Manager, Municipal Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Short-Term Municipal Income Fund,
Nations North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations
Tennessee Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund
and Nations Texas Municipal Bond Fund. Mr. Kiselak has been Portfolio Manager
for Nations North Carolina Intermediate Municipal Bond Fund and Nations North
Carolina Municipal Bond Fund since 1995. He has been Portfolio Manager for the
other Funds since 1994. Prior to assuming his position with TradeStreet, he was
Vice President and Portfolio Manager for the Investment Management Group at
NationsBank. He has worked in the investment community since 1987. His past
experience includes Portfolio Manager and Municipal Credit Analysis for Reich &
Tang Inc. Mr. Kiselak received a B.A. in Economics from Pace University.
John C. Kohl is a Director of Municipal Fixed Income Management for TradeStreet.
He is responsible for overseeing all municipal product management and is the
Senior Portfolio Manager for Nations Intermediate Municipal Bond Fund, Nations
Maryland Intermediate Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations Virginia Intermediate Municipal Bond Fund and Nations Virginia Municipal
Bond Fund. Mr. Kohl has been the Portfolio Manager for the Funds since 1994.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Kohl has worked in the investment community since 1979. His past experience
includes serving as Chief Investment Officer for London Pacific Life & Annuity,
Team Leader and Portfolio Manager for Harris Trust and Savings Bank, and
Management Consultant for asset-liability of Continental Bank. Mr. Kohl received
a joint B.A. in Economics and North American Studies from McGill University.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such 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 such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting
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services to the Funds, including performing calculations necessary to determine
net asset values and dividends, preparing tax returns and financial statements
and maintaining the portfolio records and certain general accounting records for
the Funds. For the services rendered pursuant to the Administration and
Co-Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to 0.10% of each Fund's average daily net
assets. For the fiscal period from December 1, 1995 to March 31, 1996, after
waivers, Nations Fund Trust paid its administrators combined fees at the rate of
0.10% of each Funds' average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the assets
of each Fund. The Custodian is located at 1401 Elm Street, Dallas, Texas 75202
and is a wholly owned subsidiary of NationsBank Corporation. In return for
providing custodial services, the Custodian is entitled to receive, in addition
to out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1%
of the average daily net assets of each Fund, (ii) $10.00 per repurchase
collateral transaction by the Funds, and (iii) $15.00 per purchase, sale and
maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of a Fund, as well as certain expenses
attributable to Investor A Shares, are deducted from accrued income before
dividends are declared. Each Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' fees and federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bear to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
Nations Fund Trust was organized as a Massachusetts business trust on May 6,
1985. Nations Fund Trust's fiscal year end is March 31; prior to 1996, Nations
Fund Trust's fiscal year end was November 30. The Funds currently offer five
classes of shares -- Primary A Shares, Primary B Shares, Investor A Shares,
Investor C Shares and Investor N Shares. This Prospectus relates only to the
Investor A Shares of Nations Municipal Income Fund, Nations Short-Term Municipal
Income Fund, Nations Intermediate Municipal Bond Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations
Georgia Intermediate Municipal Bond Fund, Nations Georgia Municipal Bond Fund,
Nations Maryland Intermediate Municipal Bond Fund, Nations Maryland Municipal
Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations
North Carolina Municipal Bond Fund, Nations South Carolina Intermediate
Municipal Bond Fund, Nations South Carolina Municipal Bond Fund, Nations
Tennessee Intermediate Municipal Bond Fund, Nations Tennessee Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Texas Municipal
Bond Fund, Nations Virginia Intermediate Municipal Bond Fund and Nations
Virginia Municipal Bond Fund. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class of shares. See the SAI for examples of instances where
the Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
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About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor A Shares
in order to accommodate different investors. Purchase orders for Investor A
Shares may be placed directly with a Fund or through banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into a shareholder servicing agreement ("Servicing Agreement") with
Nations Fund ("Servicing Agents") and/or a sales support agreement ("Sales
Support Agreement") with Stephens ("Selling Agents"). Servicing Agents and
Selling Agents are sometimes referred to hereafter as "Agents."
In addition Investor A Shares may be purchased through a Nations Fund Personal
Investment Planner account, which is a managed agency/asset allocation account
established with NBAI (an "Account"). Investments through an Account are
governed by the terms and conditions of the Account, which are set forth in the
Client Agreement and Disclosure Statement provided by NBAI to each investor who
establishes an Account. Because of the nature of the Account, certain of the
features described in this Prospectus are not available to investors purchasing
Investor A Shares through an Account. Potential investors through an Account
should refer to the Client Agreement and Disclosure Statement for more
information regarding the Account, including information regarding the fees and
expenses charged in connection with an Account.
There is a minimum initial investment of $1,000 in the Funds. The minimum
subsequent investment is $100, except for investments pursuant to the Systematic
Investment Plan described below.
Investor A Shares may be purchased at net asset value per share. Purchases may
be effected on days on which the New York Stock Exchange (the "Exchange") is
open for business (a "Business Day").
Nations Fund and Stephens reserve the right to reject any purchase order. The
issuance of Investor A Shares is recorded on the books of the Funds and share
certificates are not issued unless expressly requested in writing. Certificates
are not issued for fractional shares.
OPENING AN ACCOUNT DIRECTLY WITH A FUND: Investors may open a regular
(non-retirement) account directly with a Fund, either by mail or by wire.
BY MAIL: Investors should complete a New Account Application and forward it,
along with a check made payable to the Fund, to:
Nations Fund
P.O. Box 34602
Charlotte, NC 28254-4602
BY WIRE: Investors should call Investor Services at 1-800-982-2271 for an
account number and use the following wire instructions:
Nations Fund,
c/o Boston Safe Deposit & Trust
ABA #011001234
DDA #154202
Account Name
Account Number
Fund Name
Investors should complete a New Account Application and mail it to the address
above.
ADDITIONAL PURCHASES: Additional purchases may be made by mail or wire. To
purchase additional shares by mail, send a check made payable to the Fund with a
reinvestment slip to the address set forth above. To purchase additional shares
by wire, follow the wiring instructions set forth above.
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EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor A Shares in the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor A
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor A Shares. On a bi-monthly,
monthly or quarterly basis, shareholders may direct cash to be transferred
automatically from their checking or savings account at any bank to their Fund
account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent or
Investor Services.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. Shareholders should be aware that by using the telephone
transaction feature, such shareholders may be giving up a measure of security
that they may have if they were to authorize written requests only. A
shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
How To Redeem Shares
For shareholders who open and maintain an account directly with a Fund,
redemption orders should be communicated to such Fund by calling Investor
Services at 1-800-982-2271 or in writing. (Shareholders must have established
telephone features on their account in order to effect telephone transactions.)
Redemption proceeds are normally sent by mail or wired within three Business
Days after receipt of the order by the Fund. For shareholders who purchased
their shares through an Agent, redemption orders should be transmitted by
telephone or in writing through the same Agent. Redemption proceeds are normally
wired to the redeeming Agent within three Business Days after receipt of the
order by Stephens or by the Transfer Agent. Redemption orders are effected at
the net asset value per share next determined after receipt of the order by the
Fund, Stephens, or the Transfer Agent, as the case may be. The Agents are
responsible for transmitting redemption orders to Stephens or to the Transfer
Agent and for crediting their Customer's account with the redemption proceeds on
a timely basis. Redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to
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be cleared immediately. No charge for wiring redemption payments is imposed by
Nations Fund. There is no redemption charge.
Nations Fund may redeem a shareholder's Investor Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor A Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor A Shares of the Funds that were purchased prior to January 1, 1996 in
amounts of $1 million or more or through the Nations Fund Personal Investment
Planner may be subject to a CDSC equal to 1.00% of the lesser of the net asset
value or the purchase price of the shares being redeemed if such shares are
redeemed within one year of purchase, declining to 0.50% in the second year
after purchase and eliminated thereafter. No CDSC is imposed on increases in net
asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor A Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor A Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii)
effected pursuant to Nations Fund's right to liquidate a shareholder's account,
including instances where the aggregate net asset value of the Investor A shares
held in the account is less than the minimum account size, and (iii) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor A Shares in the account. Shareholders are responsible for providing
evidence sufficient to establish that they are eligible for any waiver of the
CDSC.
Within 120 days after a redemption of Investor A Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor A Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor A Shares in his/her account within the Nations Fund Family (valued at
the net asset value at the time of the establishment
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of the AWP) equals $10,000 or more. Investor A Shares redeemed under the AWP
will not be subject to a CDSC, provided that the shares so redeemed do not
exceed, on an annual basis, 12% of the net asset value of the Investor A Shares
in the account. Otherwise, any applicable CDSC will be imposed on shares
redeemed under the AWP. Shareholders who elect to establish an AWP may receive a
monthly, quarterly or annual check or automatic transfer to a checking or
savings account in a stated amount of not less than $25 on or about the 10th or
25th day of the applicable month of withdrawal. Investor A Shares will be
redeemed (net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals will reduce principal and may eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. AWPs may be terminated by shareholders
on 30 days' written notice to their Agent or by Nations Fund at any time.
How To Exchange Shares
GENERAL: The exchange feature enables a shareholder of a fund of Nations Fund to
acquire shares of the same class that are offered by any other fund of Nations
Fund when the shareholder believes that a shift between funds is an appropriate
investment decision. A qualifying exchange is based on the next calculated net
asset value per share of each fund after the exchange order is received.
For shareholders who maintain an account directly with the Fund, exchange
requests should be communicated to the Fund by calling Investor Services at
1-800-982-2271 or in writing. For shareholders who purchased their shares
through an Agent, exchange requests should be communicated to the Agent, who is
responsible for transmitting the request to Stephens or to the Transfer Agent.
The Fund and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently 60 days for termination or material revision),
absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. And, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor A Shares exchanged must have a current value of at least $1,000
(except for exchanges through the Automatic Exchange Feature, which is described
below). Nations Fund reserves the right to reject any exchange request. Only
shares that may legally be sold in the state of the shareholder's residence may
be acquired in an exchange. Only shares of a class that is accepting investments
generally may be acquired in an exchange. During periods of significant economic
or market change, telephone exchanges may be difficult to complete. In such
event, shareholders should consider communicating their exchange requests by
mail.
If Investor A Shares of the Funds purchased prior to January 1, 1996 are
exchanged for shares of the same class of another fund, any CDSC applicable to
the original shares purchased will be applied upon the redemption of the
acquired shares. The holding period of such Investor A Shares (for purposes of
determining whether a CDSC is applicable upon redemption)
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will be computed from the time of the initial purchase of the Investor A Shares
of a Fund.
Investor A Shares of Nations Short-Term Municipal Income Fund acquired directly
or indirectly through an exchange from Investor N Shares of another non-money
market fund may be re-exchanged only for Investor N Shares of another non-money
market fund, Investor C Shares of a Nations Fund money market fund or Investor A
Shares of Nations Short-Term Income Fund. Such shares (and any Investor A or
Investor C Shares acquired through the exchange of such shares) will remain
subject to the CDSC schedule applicable to the Investor N Shares originally
purchased. The holding period (for the purpose of determining the applicable
rate of the CDSC) does not accrue while the shares owned are Investor A Shares
of Nations Short-Term Municipal Income Fund or Nations Short-Term Income Fund or
Investor C Shares of a Nations Fund money market fund. The CDSC that is
ultimately charged upon redemption is based upon the total period of time the
shareholder holds Investor N Shares of any fund that charges a CDSC.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF"),
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one Nations Fund
to another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th or 30th day of the applicable month.
The shareholder must have an existing position in both funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, a
shareholder should contact his/her Selling Agent or Investor Services.
Shareholder Servicing And Distribution
Plans
The Funds' Shareholder Servicing and Distribution Plan (the "Investor A Plan"),
adopted pursuant to Rule 12b-1 under the 1940 Act, permits each Fund to
compensate (i) Servicing Agents and Selling Agents for services provided to
their Customers in connection with Investor A Shares and (ii) Stephens for
distribution-related expenses incurred in connection with Investor A Shares.
Nations Short-Term Municipal Income Fund, however, may not pay for shareholder
services under the Investor A Plan. Aggregate payments under the Funds' Investor
A Plan are calculated daily and paid monthly at a rate or rates set from time to
time by each Fund, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Investor A Shares of the Fund.
The fees payable to Servicing Agents under the Investor A Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor A Shares from
Customers and transmitting net purchase and redemption orders to Stephens or the
Transfer Agent; (ii) providing Customers with a service that invests the assets
of their accounts in Investor A Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor A Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services. Nations Short-Term
Municipal Income Fund, however, may not pay for shareholder services under the
Investor A Plan. The fees payable to Selling Agents are used primarily to
compensate or reimburse Selling Agents for providing sales support assistance in
connection with the sale of Investor A Shares to Customers,
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which may include forwarding sales literature and advertising provided by
Nations Fund to Customers.
The fees under the Investor A Plan also may be used to reimburse Stephens for
distribution-related expenses actually incurred by Stephens, including, but not
limited to, expenses of organizing and conducting sales seminars, printing
prospectuses and statements of additional information (and supplements thereto)
and reports for other than existing shareholders, preparation and distribution
of advertising and sales literature and the costs of administering the Investor
A Plan.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Investor A Plan, pay a bonus or other consideration
or incentive to Agents who sell a minimum dollar amount of shares of the Funds
during a specified period of time. Stephens also may, from time to time, pay
additional consideration to Agents not to exceed 1.00% of the offering price per
share on all sales of Investor A Shares as an expense of Stephens or for which
Stephens may be reimbursed under the Investor A Plan or upon receipt of a CDSC.
Any such additional consideration or incentive program may be terminated at any
time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Investor A
Plan at any time, and payments are subject to the continuation of the Investor A
Plan described above and the terms of the Servicing Agreements and Sales Support
Agreements. See the SAI for more details on the Investor A Plan.
In addition, the Trustees have approved a Shareholder Servicing Plan (the
"Servicing Plan") with respect to the Investor A Shares of the Nations
Short-Term Municipal Income Fund. Pursuant to its Servicing Plan, the Nations
Short-Term Municipal Income Fund may pay Servicing Agents that have entered into
a Servicing Agreement with Nations Fund for certain shareholder support services
that are provided by the Servicing Agents. Payments under the Fund's Servicing
Plan may not exceed 0.25% of the average daily net asset value of the Fund's
Investor A Shares. The shareholder services provided by Servicing Agents
include, but are not limited to, those listed above with respect to the Investor
A Plan. Nations Fund may suspend or reduce payments under the Servicing Plan at
any time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of the Funds' Investor Shares in connection with a Customer's
account. These fees would be in addition to any amounts received by a Selling
Agent under its Sales Support Agreement with Stephens or by a Servicing Agent
under its Servicing Agreement with Nations Fund. The Sales Support Agreements
and Servicing Agreements require Agents to disclose to their Customers any
compensation payable to the Agent by Stephens or Nations Fund and any other
compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
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How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. Each Fund's net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor A Shares will be reduced by the amount of any
dividend or distribution. Certain Selling or Servicing Agents may provide for
the reinvestment of dividends in the form of additional Investor A Shares of the
same class of the same Fund. Dividends and distributions are paid in cash within
five Business Days of the end of the month or quarter to which the dividend
relates. Dividends and distributions payable to a shareholder are paid in cash
within five Business Days after a shareholder's complete redemption of his/her
Investor A Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
As regulated investment companies, the Funds are permitted to pass through to
their shareholders tax-exempt income ("exempt-interest dividends") subject to
certain requirements which the Funds intend to satisfy. Distributions from
taxable income will be taxable as ordinary income to shareholders whether such
income is received in cash or reinvested in additional shares. The policy of the
Funds is to pay to their shareholders an amount equal to at least 90% of their
exempt-interest income and their investment company taxable income.
Exempt-interest dividends may be treated by shareholders as items of interest
excludable from their Federal gross income under Section 103(a) of the Code
unless under the circumstances applicable to the particular shareholder the
exclusion would be disallowed. (See the SAI under "Additional Information
Concerning Taxes.") Distributions from the Funds will not qualify for the
dividends-received deduction for corporate shareholders. Distributions of net
investment income by Nations Municipal Income Fund, Nations Short-Term Municipal
Income Fund and Nations Intermediate Municipal Bond Fund may be taxable to
investors even though a substantial portion of such distributions may be derived
from interest on tax-exempt obligations which, if realized directly, would be
exempt from such income tax.
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Substantially all of a Fund's net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders as long-term capital gains, regardless of how long the shareholders
have held the Fund's shares and whether such gains are received in cash or
reinvested in additional shares.
Each year, shareholders will be notified as to the amount and federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes, as discussed more
fully below and in the SAI.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
If any of the Funds should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
With respect to the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds, it is anticipated that exempt-interest dividends derived
from tax-exempt interest paid on municipal obligations of the pertinent state
and that state's political subdivisions, agencies, instrumentalities, and
authorities, and certain other issuers, including Puerto Rico and Guam, will be
exempt from state income tax with respect to those states which impose a state
income tax. Florida and Texas do not impose income taxes, but Florida imposes a
tax upon intangible personal property which may apply to shares of Nations
Florida Intermediate Municipal Bond Fund and Nations Florida Municipal Bond Fund
held by residents of that state. Florida has issued a Technical Assistance
Advisement indicating that shares of such Funds will not be subject to Florida's
intangibles tax, subject to certain requirements which the Funds intend to
satisfy. See the SAI for further details about state tax treatment relevant to
shareholders of the Funds.
In addition to annual disclosures as to Federal tax consequences of dividends
and distributions, shareholders of the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds will also be advised as to the state tax
consequences of dividends and distributions made each year.
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The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
FIXED-INCOME INVESTING: The performance of the fixed-income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options
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on futures contracts, forward contracts and swaps and swap-related products such
as interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans acquired by the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or the Adviser, acting under guidelines
approved and monitored by the Fund's Board, after considering trading activity,
availability of reliable price information and other relevant information, that
an adequate trading market exists for that security. To the extent that, for a
period of time, qualified institutional buyers cease purchasing such restricted
securities pursuant to Rule 144A and Section 4(2), the level of illiquidity of a
Fund holding such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for
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speculative purposes. A Fund will not sell interest rate caps or floors that it
does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: 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.
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. To the extent these
securities 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 avail-
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able 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.
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 tax.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
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.
Since each of the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds will invest primarily in securities issued by issuers
located in one state, each of these Funds is susceptible to changes in value due
to political and economic factors affecting that state's issuers. A comparable
municipal bond fund which is not concentrated in obligations issued by issuers
located in one state would be less susceptible to these risks. If any issuer of
securities held by one of these Funds is unable to meets its financial
obligations, that Fund's income, capital, and liquidity may be adversely
affected.
The fourth most populous state, Florida, rated "Aa" by Moody's and "AA" by both
S&P and Fitch, has been and continues to be a leading tourist and retiree
destination. Florida's growing population and manageable debt load are just two
of the factors that will help Florida remain a solid investment. Led by the
service, construction and trade sectors, job growth in Florida has rebounded
from the lows of 1991-1992 and is projected to be almost double the national
average for 1996. Tourism was back in 1995 after it had suffered in the prior
two years due to hurricane Andrew and a rash of violent crimes involving foreign
tourists.
The state of Georgia has one of the best debt structures in the country, hence
the "Aaa" by Moody's, and "AAA" rating by both S&P and Fitch. The population of
Georgia has been growing at twice the national rate for the past four years. Job
growth and economic expansion have been outstanding in recent years, as Georgia
prepares to host the 1996 Summer Olympic Games. Following the Olympics,
Georgia's economy should continue to expand, albeit at a slightly lower rate.
This is due in part to Georgia's competitive manufacturing base, and the diverse
service and transportation center of Atlanta.
Maryland is one of the wealthiest states in the U.S. and has been able to
maintain its "Aaa" rating by Moody's, and "AAA" rating by both Fitch and S&P,
despite the contraction of government and defense related industries. Maryland's
economic base is highly diversified with a lower than average dependence on
manufacturing. Slow growth in Maryland is expected to continue, as government
cutbacks and downsizing reduce the employment opportunities within the
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state. Debt ratios are moderate and, with Maryland ranked fifth in per capita
income, it's no surprise that income taxes and highway use taxes provide the
vast majority of support for general obligation debt. As defense cutbacks
continue, Maryland's dependence on income taxes could depress growth within the
state below national levels.
North Carolina, rated "Aaa" by Moody's, and "AAA" by both S&P and Fitch, has
benefited from an inflow of people as well as businesses. This is due in part to
North Carolina's affordable housing, above-average growth in per capita income
and below-average cost of doing business. North Carolina's declining textile
industry has begun to give way to the high-tech and financial sectors, as
evidenced by the title of "Banking Center of the South." Consequently, high wage
job growth has been expanding at a pace greater than national averages and is
expected to continue to do so for the foreseeable future.
The dominance of the manufacturing sector has been both a positive and a
negative for South Carolina. On the positive side, the expansion of
manufacturing, specifically autos and related parts, has lessened the impact of
the naval base closure in Charleston and provided a much needed infusion of new
jobs. On the negative side, the cyclical nature of South Carolina's
manufacturing economy has kept per capita income below national levels and
considerably below regional levels. That said, South Carolina's low debt burden,
strong security arrangements and lack of credit extension have led to a "Aaa"
rating by Moody's, "AA+" rating by S&P and a "AAA" rating by Fitch, for the
state. Combine this with a conservative plan of finance, and South Carolina
looks to be in a very strong financial position, despite its reliance on the
manufacturing sector.
Tennessee's very low debt burden, nearly exclusive use of general obligation
debt and conservative financial policies all combine to give the state of
Tennessee a "Aaa" rating by Moody's, "AA+" rating by S&P, and a "AAA" rating by
Fitch. Tennessee's economy remains in a developing mode, as the state continues
to shift its growth in manufacturing output to autos (Tennessee ranks third in
the nation in automobile production) and related products from textiles.
Tennessee relies on sales tax revenues as a main source of funds. This could
prove to be a limiting factor were it not for Tennessee's strong pattern of job
growth and growing population.
Texas has proven its ability to adapt and rebound to a changing economic
environment, both within the state and abroad. Texas has also historically taken
a conservative approach to financial management, as is reflected in the state's
"Aa" rating by Moody's, "AA" rating by S&P, and "AA-" rating by Fitch. Although
Texas has consistently led the U.S. in employment growth, unemployment in Texas
is above the national average. This is due, in part, to the heavy migration into
the state (in 1994 Texas replaced New York as the second most populous state).
Look for economic conditions in Texas to improve further as Mexico comes out of
its economic dilemma.
The state of Virginia has earned its "Aaa" rating by Moody's and "AAA" rating by
S&P and Fitch, by having a low relative tax rate, high per capita income and
strong growth in service sector jobs. A very high share of Virginia's population
is college educated, so it's no surprise that Virginia has the highest per
capita income of any of the southern states. Virginia has also maintained a low
unemployment rate despite strong growth in the labor force. Although it has a
large exposure to defense and related industries, Virginia's prudent financial
management and low debt burden should help to insulate it from any government
cutbacks in those areas.
There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. More detailed information about matters relating to each of the
State Intermediate Municipal Bond Funds and State Municipal Bond Funds is
contained in the SAI.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's invest-
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ment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued,"
54
<PAGE>
"delayed delivery" or "forward commitment" basis occurs when the payment for and
delivery of securities takes place at a future date. Because actual payment for
and delivery of such securities generally take place 15 to 45 days after the
purchase date, purchasers of such securities bear the risk that interest rates
on debt securities at the time of delivery may be higher or lower than those
contracted for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest four ratings used by S&P for corporate and
municipal bonds, each of which denotes that the securities are investment grade.
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.
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 four ratings used by Moody's for corporate
and municipal bonds, each of which denotes that the securities are investment
grade.
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.
55
<PAGE>
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
56
<PAGE>
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 funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The
57
<PAGE>
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 ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
58
<PAGE>
Prospectus
INVESTOR B SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
(each a "Fund" and collectively, the "Money Market
Funds"), listed in the column to the right, of
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Investor B
Shares.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET
ASSET VALUE OF $1.00 PER SHARE. INVESTMENTS IN THE
FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT
THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor B Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs bear the same date as this
Prospectus and are incorporated by reference in
their entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Funds. TradeStreet Investment Associates,
Inc. ("TradeStreet") is sub-investment adviser to
the Funds. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Prime Fund
Nations Treasury Fund
Nations Government
Money Market Fund
Nations Tax Exempt Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 7
How Objectives Are Pursued 8
How Performance Is Shown 11
How the Funds Are Managed 11
Organization And History 15
About Your Investment
How To Buy Shares 16
Shareholder Servicing And Distribution Plans 17
How To Redeem Shares 18
How To Exchange Shares 20
How The Funds Value Their Shares 20
How Dividends And Distributions Are Made;
Tax Information 21
Appendix A -- Portfolio Securities 22
Appendix B -- Description Of Ratings 29
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment objective
is to seek as high a level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to seek as
high a level of current interest income exempt from Federal
income taxes as is consistent with liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $25,000 minimum initial investment per record holder.
$1,000 minimum subsequent investment (except for investments pursuant
to the Systematic Investment Plan and reinvested dividends). See "How
To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor B Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Nations Prime Nations Treasury Government Money
Fund Fund Market Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Charge None None None
<CAPTION>
</TABLE>
ANNUAL FUND OPERATING EXPENSES*
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .14% .14% .12%
Rule 12b-1 Fees (After Fee Waivers) .00% .00% .00%
Shareholder Servicing Fees (After Fee Waivers) .25% .25% .25%
Other Expenses (After Expense Reimbursements) .16% .16% .18%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .55% .55% .55%
Nations
Tax Exempt
Fund
Sales Load Imposed on Purchases None
Deferred Sales Charge None
<CAPTION>
Management Fees (After Fee Waivers) .13%
<S> <C>
Rule 12b-1 Fees (After Fee Waivers) .00%
Shareholder Servicing Fees (After Fee Waivers) .20%
Other Expenses (After Expense Reimbursements) .17%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .50%
</TABLE>
* The Funds and Stephens have voluntarily agreed to limit the total charges
against each Fund's net assets for sales distribution activities and/or
servicing of shareholder accounts to no more than .25% of each Fund's average
net assets per annum. This limitation will not be terminated without prior
notice to shareholders.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor B Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Nations Nations Government
Prime Treasury Money
Fund Fund Market Fund
1 Year $ 6 $ 6 $ 6
3 Years $18 $18 $18
5 Years $31 $31 $31
10 Years $69 $69 $69
<CAPTION>
Nations
Tax Exempt
Fund
1 Year $ 5
3 Years $16
5 Years $28
10 Years $63
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in each
Fund will bear either directly or indirectly. The "Other Expenses" figures
contained in the above table are based on estimated amounts for the Funds'
current fiscal year and reflect anticipated fee waivers and reimbursements.
There is no assurance that these fee waivers and reimbursements will continue
beyond the current fiscal year. If fee waivers and/or reimbursements are
discontinued, the amounts contained in the "Examples" above may increase. For
more complete descriptions of the Funds' operating expenses, see "How The Funds
Are Managed."
4
<PAGE>
Absent fee waivers and expense reimbursements, "Management Fees," "Rule 12b-1
Fees," "Other Expenses" and "Total Operating Expenses" for Investor B Shares of
the indicated Fund would be as follows: Nations Prime Fund -- .20%, .10%, .16%
and .71%, respectively; Nations Treasury Fund -- .20%, .10%, .16% and .71%,
respectively; Nations Government Money Market Fund -- .40%, .10%, .18% and .93%,
respectively. Absent fee waivers and expense reimbursements, "Management Fees,"
"Rule 12b-1 Fees," "Shareholder Servicing Fees," "Other Expenses" and "Total
Operating Expenses" for Nations Tax Exempt Fund would have been .40%, .10%,
.25%, .17% and .92%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse is the independent accountant to Nations Fund Trust and Nations Fund,
Inc. The reports of Price Waterhouse for the most recent fiscal years of Nations
Fund Trust and Nations Fund, Inc. accompany the financial statements for such
periods and are incorporated by reference in the SAIs, which are available upon
request. Shareholders of a Fund will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by the Fund's independent accountant.
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 05/31/95 05/31/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0447 0.0493 0.0015
Dividends from net investment income (0.0447) (0.0493) (0.0015)
Total dividends and distributions (0.0447) (0.0493) (0.0015)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.57% 5.03% 0.15%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 358,646 $ 216,973 $ 2
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 5.37%+ 4.97% 2.95%+
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 0.62%+ 0.64% 0.62%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0442 $ 0.0485 $ 0.0015
</TABLE>
* Nations Prime Fund Investor B Shares commenced operations on May 11, 1994.
+ Annualized.
++ Total return represents aggregrate total return for the periods indicated
and does not reflect the deduction of any applicable sales charge.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 05/31/95 05/31/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0437 0.0468 0.0015
Dividends from net investment income (0.0437) (0.0468) (0.0015)
Distributions from net realized capital gains (0.0000)# (0.0000)# --
Total dividends and distributions (0.0437) (0.0468) (0.0015)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.46% 4.76% 0.14%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,525,048 $ 52,564 $ 2
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 5.27%+ 4.73% 2.72%+
Ratio of operating expenses to average net assets without waivers
and/or reimbursements 0.62+ 0.61% 0.61%+
Net investment income per share without waivers and/or reimbursements $ 0.0432 $ 0.0463 $ 0.0014
</TABLE>
* Nations Treasury Fund Investor B Shares commenced operations on May 16,
1994.
+ Annualized.
++ Total return represents aggregrate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.0001.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
<TABLE>
<CAPTION>
NATIONS GOVERNMENT MONEY MARKET FUND
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0165 0.0532 0.0222
Distributions:
Dividends from net investment income (0.0165) (0.0532) (0.0222)
Distributions from net realized capital gains -- -- (0.0000)#
Total dividends and distributions (0.0165) (0.0532) (0.0222)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 1.66% 5.45% 2.24%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 62,617 $ 27,079 $ 11,955
Ratio of operating expenses to average net assets 0.55%+ 0.55% 0.55%+
Ratio of net investment income to average net assets 4.95%+ 5.33% 3.54%+
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 0.84%+ 0.82% 0.84%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0155 $ 0.0505 $ 0.0206
</TABLE>
* Nations Government Money Market Fund Investor B Shares commenced operations
on May 17, 1994.
+ Annualized.
++ Total return represents aggregrate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
6
<PAGE>
FOR AN INVESTOR B SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS TAX EXEMPT FUND
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR B SHARES 03/31/96(a) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0106 0.0342 0.0141
Dividends from net investment income (0.0106) (0.0342) (0.0141)
Total dividends and distributions (0.0106) (0.0342) (0.0141)
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00
Total return++ 1.06% 3.47% 1.43%
Ratios to average net assets/supplemental data:
Net assets, end of year (in 000's) $ 132,914 $ 86,374 $ 3
Ratio of operating expenses to average net assets 0.50%+ 0.50% 0.47%+
Ratio of net investment income to average net assets 3.15%+ 3.42% 2.39%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.78%+ 0.77% 0.79%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0097 $ 0.0316 $ 0.0118
</TABLE>
* Nations Tax Exempt Fund Investor B Shares commenced operations on May 17,
1994.
+ Annualized.
++ Total return represents aggregrate total return for the periods indicated
and does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
7
<PAGE>
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, 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 or instrumentalities ("U.S. Government Obligations"), bank and
commercial instruments that may be available in the money markets, high quality
short-term taxable obligations issued by state and local governments, their
agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified First Tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and 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 or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in obligations the
principal and interest of which are backed by the full faith and credit of the
United States Government, provided that such Fund shall, under normal market
conditions, invest at least 65% of its total assets in U.S. Treasury bills,
notes and bonds and other instruments issued directly by the U.S. Government.
The Fund may lend its portfolio securities to qualified institutional investors.
For more information concerning these instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For more information
concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the issuer or bond counsel, is
exempt from regular Federal income tax ("Municipal Securities"). The Fund will
not knowingly purchase securities the interest on which is subject to such tax.
A portion of the Fund's assets, however, may be invested in private activity
bonds, the interest on which may be treated as a specific tax preference item
under the Federal alternative minimum tax. See "How Dividends And Distributions
Are Made; Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"), or
Thomson BankWatch, Inc. ("BankWatch") or Aa or higher by Moody's Investors
Service, Inc. ("Moody's"), in the case of bonds; rated "A" or higher by D&P,
Fitch, S&P, IBCA, BankWatch or Moody's in the case
8
<PAGE>
of certain bonds which are unrated securities (I.E., lacking a short-term rating
from the requisite number of nationally recognized statistical rating
organizations); rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1"
by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher by
D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of
variable-rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by
Fitch, "A-1" or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by Nations
Fund Trust's Board of Trustees. The applicable Municipal Securities ratings are
described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities, and authorities and each multi-state agency of
which a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund 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 or partnerships. For more information
concerning the Fund's investments, see "Appendix A."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds' investment in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments in obligations of domestic banks.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or are privately
placed), may enter into repurchase
agree-
9
<PAGE>
ments and may lend portfolio securities in accordance with its investment
policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of such Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
In addition, as a matter of non-fundamental policy, the Nations Tax Exempt Fund
may not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations. The investment objectives and policies of the Funds, unless
otherwise specified, may be changed without shareholder approval. If the
investment objective or policies of a Fund change, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current positions and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in its best interests, it may consider terminating sales
of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost (see "How The Funds Value Their
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended (the "1940 Act"), some of
which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with a
remaining maturity of more than 397 days, provided such obligations are subject
to demand features or resets and to maintaining a dollar-weighted average
portfolio maturity of 90 days or less. Quality requirements generally limit
investments to U.S. dollar denominated instruments determined to present minimal
credit risks and that, at the time of acquisition, are rated in the first or
second rating categories (known as "first tier" and "second tier" securities,
respectively) by the required number of NRSROs (at least two or, if only one
NRSRO has rated the security, that one NRSRO) or, if unrated by any NRSRO, are
(i) comparable in priority and security to a class of short-term securities of
the same issuer that has the required rating, or (ii) determined to be
comparable in quality to securities having the required rating. The
diversification requirements provide generally that a Money Market Fund may not
at the time of acquisition invest more than 5% of its assets in securities of
any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Tax Exempt Fund) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second tier securities of one issuer is limited
to the greater of 1% of total assets or one million dollars. Securities issued
by the U.S. Government, its agencies, authorities or instrumentalities are
exempt from the quality requirements, other than minimal credit risk. In the
event that a Fund's investment restrictions or permissible investments are more
restrictive than the requirements of Rule 2a-7, the Fund's own restrictions will
govern.
10
<PAGE>
How Performance Is Shown
From time to time, a Fund may advertise the "yield" and "effective yield" of a
class of shares, and Nations Tax Exempt Fund may advertise the "tax-equivalent
yield" of a class of shares. YIELD, EFFECTIVE YIELD AND TAX-EQUIVALENT YIELD
FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in such class over a seven-day period identified in the
advertisement. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate. The tax-equivalent yield will always be higher than the
"yield" of a class of shares in Nations Tax Exempt Fund.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts for automatic investment or other cash
management services will not be included in calculations of yield.
In addition to Investor B Shares, the Funds offer Primary A, Primary B, Investor
A, Investor C and Investor D Shares. Each class of shares may bear different
sales charges, shareholder servicing fees and other expenses, which may cause
the performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of the Funds'
shares. The Funds' annual report contains additional performance information and
is available upon request without charge from the Funds' distributor or an
investor's selling agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
11
<PAGE>
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Fund, if the Adviser believes that the quality of the transactions and the
commissions are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of the first $250 million of the combined
average daily net assets of both Nations Prime Fund and Nations Treasury Fund,
plus 0.20% of the combined average daily net assets of such Funds in excess of
$250 million; and 0.40% of the average daily net assets of each of Nations
Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995, to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%:
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.55% of average daily net assets of Nations Government Money
Market Fund, Nations Tax Exempt Fund, Nations Prime Fund and Nations Treasury
Fund.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfo-
12
<PAGE>
lio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysts.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager for Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements 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 statutes, regulations and judicial or
administrative decisions or interpretations, could prevent entities from
continuing to perform, in whole or in part, such services. If any such entity
were prohibited from performing any such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to Co-Administration
Agreements. Under the Co-Administration Agreements, First Data provides various
administrative and accounting services to the Funds, including performing
calculations necessary to determine net asset values and dividends, preparing
tax returns and financial statements and maintaining the portfolio records and
certain general accounting records for the Funds. For the services rendered
pursuant to the Administration and Co-Administration Agreements, Stephens and
First Data are entitled to receive a combined fee at the annual rate of up to
0.10% of each Fund's average daily net assets. For the fiscal period
13
<PAGE>
from December 1, 1995 to March 31, 1996, after waivers, Nations Fund Trust paid
its administrators combined fees at the rate of 0.09% of the average daily net
assets of Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
and Nations Treasury Fund -- 0.05%.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor B Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A., serves as each Fund's custodian (the "Custodian").
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of each Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
Investor B Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor B Shares, are deducted from accrued income before
dividends are declared. The respective Funds' expenses include, but are not
limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
interest; Directors' or Trustees' fees; federal and state securities
registration and qualification fees; brokerage fees and commissions; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders; charges of the Custodian and Transfer Agent; certain
insurance premiums; outside auditing and legal expenses; costs of shareholder
reports and shareholder meetings; other expenses which are not expressly assumed
by the Adviser, NationsBank, Stephens or First Data under their respective
agreements with Nations Fund; and any extraordinary expenses. Investor B Shares
may bear certain class specific retail transfer agency expenses and also bear
certain additional shareholder service and distribution costs. Any general
expenses of Nations Fund Trust and/or of Nations Fund, Inc. that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund Trust and/or of Nations Fund, Inc. or in such other
manner as the Board of Trustees or Board of Directors deems appropriate.
14
<PAGE>
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares, Investor C Shares and Investor D Shares. This
Prospectus relates only to the Investor B Shares of Nations Government Money
Market Fund and Nations Tax Exempt Fund of Nations Fund Trust. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund and
shareholders of a fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of instances
where the 1940 Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or portfolios, each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor B Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the
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exclusive right to vote on matters affecting only the rights of the holders of
such fund or class. In the event of dissolution or liquidation, holders of each
class will receive pro rata, subject to the rights of creditors, (a) the
proceeds of the sale of that portion of the assets allocated to that class held
in the respective fund of Nations Fund, Inc., less (b) the liabilities of
Nations Fund, Inc. attributable to the respective fund or class or allocated
among the funds or classes based on the respective liquidation value of each
fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of Directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of Nations Fund, Inc.'s outstanding shares.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings, except when required by
the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor B Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into sales support agreements
("Sales Support Agreements") with Stephens ("Selling Agents").
There is a minimum initial investment of $25,000; the minimum subsequent
investment is $1,000, except for investments pursuant to the Systematic
Investment Plan described below and reinvested dividends. Investor B Shares of
the Money Market Funds are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected only on days on which
the Federal Reserve Bank of New York is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
under which they will provide sales support assistance to their Customers who
own Investor B Shares. In addition, banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into shareholder servicing agreements ("Servicing Agreements") will provide
various shareholder services for their Customers who own Investor B Shares
("Servicing Agents"). Selling Agents and
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Servicing Agents are sometimes referred to hereafter as "Agents." From time to
time the Agents, Stephens, and Nations Fund may agree to voluntarily reduce the
fees payable for shareholder services and sales support services. See
"Shareholder Servicing And Distribution Plans."
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor B Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12:00 noon,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund). Absent prior arrangement with Stephens or the Transfer
Agent, purchase orders received after such time on any given day will not be
accepted; notice thereof will be given to the Selling Agent transmitting the
order, and any funds received will be returned promptly to the sending Selling
Agent. Any late purchase orders that are not rejected pursuant to such a prior
arrangement will be executed on the following Business Day. If federal funds are
not available by 4:00 p.m., Eastern time, the order will be canceled. Investor B
Shares are purchased at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent.
The Selling Agents are responsible for transmitting orders for purchases by
their Customers and delivering required funds on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor B Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from
$500. For more information concerning the SIP, contact your Selling Agent.
TELEPHONE TRANSACTIONS: An investor may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
Shareholder Servicing And Distribution
Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits each Fund to compensate Servicing Agents for certain shareholder
support services that are provided by the Servicing Agents to their Customers
that own Investor B Shares. Payments under the Servicing Plan will be calculated
daily and paid monthly at a rate set from
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time to time by the Board of Directors or the Board of Trustees, provided that
the annual rate may not exceed 0.25% of the average daily net asset value of a
Fund's Investor B Shares. The shareholder services provided by Servicing Agents
may include general shareholder liaison services; processing purchase, exchange
and redemption requests from Customers and placing orders with Stephens or the
Transfer Agent; processing dividend and distribution payments from a Fund on
behalf of Customers; providing sales information periodically to Customers,
including information showing their positions in Investor B Shares; providing
sub-accounting with respect to Investor B Shares beneficially owned by Customers
or the information necessary for sub-accounting; responding to inquiries from
Customers concerning their investment in Investor B Shares; arranging for bank
wires; and providing such other similar services as may be reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Directors and
Trustees also have approved a Distribution Plan with respect to Investor B
Shares of the Funds. Pursuant to the Distribution Plan, each Fund may compensate
or reimburse Stephens for expenses incurred in connection with sales support
services. Payments under the Distribution Plan will be calculated daily and paid
monthly at a rate or rates set from time to time by the Board of Directors or
Board of Trustees provided that the annual rate may not exceed 0.10% of the
average daily net asset value of a Fund's Investor B Shares. Payments to
Stephens pursuant to the Distribution 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. Fees received by Stephens pursuant to the Distribution 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 Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the Funds'
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Selling Agents and/or Servicing Agents may charge
fees to their Customers who are the owners of Investor B Shares for various
services provided in connection with a Customer's account. These fees would be
in addition to any amounts received by a Selling Agent under its Sales Support
Agreement with Stephens or by a Servicing Agent under its Servicing Agreement
with Nations Fund. The Sales Support Agreements and Servicing Agreements require
Agents to disclose to their Customers any compensation payable to the Agents by
Stephens or Nations Fund and any other compensation payable by the Customers for
various services provided in connection with their accounts. Customers of Agents
should read this Prospectus in light of the terms governing their accounts with
their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent. The Selling Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customer's account with the redemption
pro-
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ceeds on a timely basis. No charge for wiring redemption payments is imposed by
Nations Fund.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), and payment will normally be wired the
same day to Selling Agents. Nations Fund reserves the right to wire redemption
proceeds within three Business Days after receiving the redemption orders if, in
the judgment of NationsBank, an earlier payment could adversely impact a Fund.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Redemption orders received by Stephens or by the Transfer Agent after 3:00 p.m.,
Eastern time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), will be processed on the next
Business Day.
Nations Fund may redeem a shareholder's Investor B Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of a Fund involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor B Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
Free checkwriting is available with respect to Investor B Shares of the Funds.
With this service, a shareholder may write checks in the amount of $500 or more.
To obtain checks, a shareholder must complete the signature section included
within the Account Application Form. To establish this checkwriting service
after opening an account in one of the Funds, the shareholder must contact
his/her Selling Agent by telephone or mail to obtain an Application Form. A
shareholder will receive the dividends and distributions declared on the shares
to be redeemed up to the day that a check is presented to the Custodian for
payment. Upon 30 days' prior written notice to shareholders, the checkwriting
privilege may be modified or terminated. An investor cannot close an account in
a Fund by writing a check.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the
Investor B Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Shareholders who elect to establish an AWP may receive a monthly,
quarterly or annual check or automatic transfer to a checking or savings account
in a stated amount of not less than $500 on or about the 10th or 25th day of the
applicable month of withdrawal. Investor B Shares will be redeemed as necessary
to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling Agent or by Nations Fund at any time.
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How To Exchange Shares
The exchange feature enables a shareholder of Investor B Shares of a Money
Market Fund to acquire Investor B Shares of another Money Market Fund when that
shareholder believes that a shift between Funds is an appropriate investment
decision. An exchange of Investor B Shares for Investor B Shares of another
Money Market Fund is made on the basis of the next calculated net asset value
per share of each Fund after the exchange order is received.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently sixty days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within ninety days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the Selling Agent through which the original shares were
purchased. Investors should consult their Selling Agent or Stephens for further
information regarding exchanges.
Investor B Shares may be exchanged by directing a request directly to the
Selling Agent through which the original Investor B Shares were purchased or in
some cases Stephens or the Transfer Agent. Investors should consult their
Selling Agent or Stephens for further information regarding exchanges. Your
exchange feature may be governed by your account agreement with your Selling
Agent.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in a Fund is calculated
by dividing the total value of its assets, less liabilities, by the number of
shares in the class outstanding. Shares are valued as of 3:00 p.m., Eastern time
(1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), on each Business Day. Currently, the days on
which the Federal Reserve Bank of New York is closed (other than weekends) are:
New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day, Thanksgiving Day and
Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Fund seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of each Fund
are declared daily to shareholders at 3:00 p.m., Eastern time (1:00 p.m.,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund), on the day of declaration. Investor B Shares begin earning
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Investor B
Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Fund's Transfer Agent and will become
effective with respect to dividends paid after its receipt. Your dividend
election may be governed by your account agreement with your Selling Agent.
Dividends are paid in cash within five Business Days after a shareholder's
complete redemption of his/her Investor B Shares in a Fund. To the extent that
there are any net short-term capital gains, they will be paid at least annually.
Each Fund's net investment income available for distribution to the holders of
Investor B Shares will be reduced by the amount of sales support and shareholder
servicing fees paid to Selling Agents and Servicing Agents, respectively. Each
Fund's net investment income available for distribution to the holders of
Investor B Shares will be reduced by the amount of retail transfer agency fees
allocated to Investor B Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax on amounts
distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an IRA
are generally deferred under the Code.) These distributions will not qualify for
the dividends received deduction for corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends (and capital gains, if applicable) paid during the prior year.
Such dividends (and capital gains) may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if
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withholding results in overpayment of tax. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, Nations Tax Exempt
Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund may be taxable to investors under state or local law even though a
substantial portion of such distribution may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
If Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. To the extent, if any, dividends paid to
shareholders are derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from Federal income tax and
also may be subject to state and local tax.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets 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. Instead, Asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
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Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the related SAI.
Non-mortgage-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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Prime Fund may invest up to 100% of its assets in obligations issued by
banks. All other Funds will limit their investments in bank obligations so they
do not exceed 25% of each Fund's total assets at the time of purchase. Nations
Prime Fund may invest in U.S. dollar-denominated obligations issued by foreign
branches of domestic banks ("Eurodollar" obligations) and domestic branches of
foreign banks ("Yankee dollar" obligations).
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price.
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Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. In addition, the Funds may use reverse
repurchase agreements for the purpose of investing the proceeds in tri-party
repurchase agreements. Generally, the effect of such a transaction is that a
Fund can recover all or most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase agreement, while it will be
able to keep the interest income associated with those portfolio securities.
Such transactions are only advantageous if the interest cost to a Fund of the
reverse repurchase transaction is less than the cost of obtaining the cash
otherwise.
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 Fund is 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 Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Fund does not establish and
maintain a segregated account (as described above). Under the requirements of
the 1940 Act, a Fund is required to maintain an asset coverage (including the
proceeds of the borrowings) of at least 300% of all borrowings. Depending on
market conditions, a Fund's asset coverage and other factors at the time of a
reverse repurchase, the Fund may not establish a segregated account when the
Adviser believes it is not in the best interests of the Fund to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations 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 objective. In
addition, a Fund 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 the Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dol-
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lar-denominated) of foreign corporations and banks as well as obligations of
foreign governments and their political subdivisions (which will be limited to
direct government obligations and government-guaranteed securities). Such
investments may subject a Fund to special investment risks, including future
political and economic developments, the possible imposition of withholding
taxes on interest income, possible seizure or nationalization of foreign
deposits, the possible establishment of exchange controls, or the adoption of
other foreign governmental restrictions which might adversely affect the payment
of principal and interest on such obligations. In addition, foreign issuers in
general may be subject to different accounting, auditing, reporting, and record
keeping standards than those applicable to domestic companies, and securities of
foreign issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
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.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the Funds sells their shares. Repurchase agreements, time de-
posits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
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acting under guidelines approved and monitored by such Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less, or instruments
subject to demand features or resets if the remaining maturity is more than 397
days. Money market instruments may include, among other instruments, certain
U.S. Treasury Obligations, U.S. Government Obligations, bank instruments,
commercial instruments, repurchase agreements and municipal securities. Such
instruments are described in this Appendix A.
MUNICIPAL SECURITIES: 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 instrument. 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
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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. 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.
Municipal Securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. 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.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The Funds will limit their put transacations to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Tax Exempt Fund may invest more than
40% of its portfolio in puts or other securities guaranteed by banks and other
financial institutions. Accordingly, changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable solely from revenues of similar projects if such investment is deemed
necessary or appropriate by the Adviser. To the extent
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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.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by the trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government Obliga-
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tions may fluctuate due to fluctuations in market interest rates. As a general
matter, the value of debt instruments, including U.S. Government Obligations,
declines when market interest rates increase and rises when market interest
rates decrease. Certain types of U.S. Government obligations are subject to
fluctuations in yield or value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered illiquid if there is no secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally takes place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
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.
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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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. 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 and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
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.
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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 two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term ratings described above.
For commercial paper, Fitch uses the short-term ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest 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 very high.
AA -- The second highest category; indicates a superior ability to repay
principal and interest on a timely basis with limited
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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.
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 degree of 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".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
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:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
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Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Money Market Funds") of
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Investor C
Shares.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET
ASSET VALUE OF $1.00 PER SHARE. INVESTMENTS IN THE
MONEY MARKET FUNDS ARE NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE
NO ASSURANCE THAT THE MONEY MARKET FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs bear the same date as this
Prospectus and are incorporated by reference in
their entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Funds. TradeStreet Investment Associates,
Inc. ("TradeStreet") is sub-investment adviser to
the Funds. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Prime Fund
Nations Treasury Fund
Nations Government
Money Market Fund
Nations Tax
Exempt Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 7
How Objectives Are Pursued 8
How Performance Is Shown 10
How The Funds Are Managed 11
Organization And History 14
About Your Investment
How To Buy Shares 16
Shareholder Servicing Plan 17
How To Redeem Shares 17
How To Exchange Shares 18
How The Funds Value Their Shares 19
How Dividends And Distributions Are Made; Tax
Information 20
Appendix A -- Portfolio Securities 22
Appendix B -- Description Of Ratings 29
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUNDS' SAIS INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
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About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent
consistent with the preservation of capital and the
maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment objective
is to seek as high a level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to seek as
high a level of current interest income exempt from Federal
income taxes as is consistent with liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains, are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
3
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Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
INVESTOR C SHARES
Nations
Government Nations Tax
Nations Nations Money Exempt
SHAREHOLDER TRANSACTION EXPENSES Prime Fund Treasury Fund Market Fund Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Charge None None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .14% .14% .12% .13%
Rule 12b-1 Fees None None None None
Shareholder Servicing Fees (After Fee Waivers) .25% .25% .25% .15%
Other Expenses (After Expense Reimbursements) .16% .16% .18% .17%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .55% .55% .55% .45%
</TABLE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations
Nations Prime Nations Treasury Government Money
Fund Fund Market Fund
<S> <C> <C> <C>
1 Year $ 6 $ 6 $ 6
3 Years $ 18 $ 18 $ 18
5 Years $ 31 $ 31 $ 31
10 Years $ 69 $ 69 $ 69
</TABLE>
<TABLE>
<CAPTION>
Nations Tax
Exempt
Fund
<S> <C>
1 Year $ 5
3 Years $ 14
5 Years $ 25
10 Years $ 57
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in each
Fund will bear either directly or indirectly. The "Other Expenses" figures
contained in the above table are based on estimated amounts for the Funds'
current fiscal year and reflect anticipated fee waivers and reimbursements.
There is no assurance that any fee waivers and reimbursements will continue
beyond the current fiscal year. If fee waivers and/or reimbursements are
discontinued, the amounts contained in the "Examples" above may increase. For
more complete descriptions of the Funds' operating expenses, see "How The Funds
Are Managed."
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Absent fee waivers and expense reimbursements, "Management Fees," "Other
Expenses" and "Total Operating Expenses" for Investor C Shares of the indicated
Fund would have been as follows: Nations Prime Fund -- .20%, .16% and .61%,
respectively; Nations Treasury Fund -- .20%, .16% and .61%, respectively;
Nations Government Money Market Fund -- .40%, .18% and .83%, respectively.
Absent fee waivers and expense reimbursements, "Management Fees," "Shareholder
Servicing Fees," "Other Expenses" and "Total Operating Expenses" for the Nations
Tax Exempt Fund would have been .40%, .25%, .17%, .17% and .82%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor C Shares 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0447 0.0493 0.0155
Dividends from net investment income (0.0447) (0.0493) (0.0155)
Total dividends and distributions (0.0447) (0.0493) (0.0155)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.57% 5.03% 1.58%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 74,822 $ 53,451 $ 1,481
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 5.37%+ 4.97% 2.95%+
Ratio of operating expenses to average net assets without waivers
and/or reimbursements 0.62%+ 0.64% 0.62%+
Net investment income per share without waivers and/or
reimbursements $ 0.0442 $ 0.0485 $ 0.0151
</TABLE>
* Nations Prime Fund Investor C Shares commenced operations on November 26,
1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
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FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor C Shares 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0437 0.0468 0.0019
Dividends from net investment income (0.0437) (0.0468) (0.0019)
Distributions from net realized capital gains (0.0000)# (0.0000)# --
Total dividends and distributions (0.0437) (0.0468) (0.0019)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 4.46% 4.76% 0.19%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,783 $ 6,373 $ 191
Ratio of operating expenses to average net assets 0.55%+ 0.56% 0.55%+
Ratio of net investment income to average net assets 5.27%+ 4.73% 2.72%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.62%+ 0.61% 0.61%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0432 $ 0.0463 $ 0.0019
</TABLE>
* Nations Treasury Fund Investor C Shares commenced operations on May 11, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Amount represents less than $0.0001.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor C Shares 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0165 0.0532 0.0290
Distributions:
Dividends from net investment income (0.0165) (0.0532) (0.0290)
Dividends from net realized capital gains -- -- (0.0000)#
Total dividends and distributions (0.0165) (0.0532) (0.0290)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 1.66% 5.44% 2.94%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,731 $ 4,414 $ 476
Ratio of operating expenses to average net assets 0.55%+ 0.55% 0.55%+
Ratio of net investment income to average net assets 4.95%+ 5.33% 3.54%+
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 0.84%+ 0.82% 0.84%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0155 $ 0.0505 $ 0.0268
</TABLE>
* Nations Government Money Market Fund Investor C Shares commenced operations
on March 21, 1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.0001 per share.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
Investor C Shares 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00
Net investment income 0.0107 0.0346 0.0203
Dividends from net investment income (0.0107) (0.0346) (0.0203)
Total dividends and distributions (0.0107) (0.0346) (0.0203)
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00
Total return++ 1.07% 3.52% 2.05%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 66,743 $ 41,409 $ 25,704
Ratio of operating expenses to average net assets 0.45%+ 0.45% 0.42%+
Ratio of net investment income to average net assets 3.20%+ 3.47% 2.44%+
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 0.73%+ 0.72% 0.74%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.0098 $ 0.0320 $ 0.0177
</TABLE>
* Nations Tax Exempt Fund Investor C Shares commenced operations on March 7,
1994.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
7
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How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, 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 or instrumentalities ("U.S. Government Obligations"), bank and
commercial instruments that may be available in the money markets, high quality
short-term taxable obligations issued by state and local governments, their
agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified First Tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and 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 or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in obligations the
principal and interest of which are backed by the full faith and credit of the
United States Government, provided that such Fund shall, under normal market
conditions, invest at least 65% of its total assets in U.S. Treasury bills,
notes and bonds and other instruments issued directly by the U.S. Government.
The Fund may lend its portfolio securities to qualified institutional investors.
For more information concerning these instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For more information
concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the issuer or bond counsel, is
exempt from regular Federal income tax ("Municipal Securities"). The Fund will
not knowingly purchase securities the interest on which is subject to such tax.
A portion of the Fund's assets, however, may be invested in private activity
bonds, the interest on which may be treated as a specific tax preference item
under the Federal alternative minimum tax. See "How Dividends And Distributions
Are Made; Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA") or
Thomson BankWatch, Inc. ("BankWatch") or Aa or higher by Moody's Investors
Service, Inc. ("Moody's"), in the case of bonds; rated "A" or higher by D&P,
Fitch, S&P, IBCA, BankWatch or Moody's in the case
8
<PAGE>
of certain bonds which are unrated securities (I.E., lacking a short-term rating
from the requisite number of nationally recognized statistical rating
organizations); rated "D-1" or higher by D&P, "F-1" or higher by Fitch, "SP-1"
by S&P, or "MIG-1" by Moody's in the case of notes; rated "D-1" or higher by
D&P, "F-1" or higher by Fitch, or "VMIG-1" by Moody's in the case of
variable-rate demand notes; or rated "D-1" or higher by D&P, "F-1" or higher by
Fitch, "A-1" or higher by S&P, or "Prime-1" by Moody's in the case of tax-exempt
commercial paper. D&P, Fitch, S&P, Moody's, IBCA and BankWatch are the six
nationally recognized statistical rating organizations (collectively, "NRSROs").
Securities that are unrated at the time of purchase will be determined to be of
comparable quality by the Adviser pursuant to guidelines approved by Nations
Fund Trust's Board of Trustees. The applicable Municipal Securities ratings are
described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund 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 or partnerships. For more information
concerning the Fund's investments, see "Appendix A."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds' investment in
particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in each Fund's SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments in obligations of domestic banks.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or are privately
placed), may enter into repurchase
agree-
9
<PAGE>
ments and may lend portfolio securities in accordance with its investment
policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of such Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
In addition, as a matter of non-fundamental policy, Nations Tax Exempt Fund may
not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations. The investment objectives and policies of the Funds, unless
otherwise specified, may be changed without shareholder approval. If the
investment objective or policies of a Fund change, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current positions and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus or the SAIs. Should a Fund determine that any such
commitment is no longer in its best interests, it may consider terminating sales
of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost (see "How The Funds Value Their
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended ("1940 Act"), some of which
are described below. A Money Market Fund is limited to acquiring obligations
with a remaining maturity of 397 days or less, or obligations with a remaining
maturity of more than 397 days, provided such obligations are subject to demand
features or resets and to maintaining a dollar-weighted average portfolio
maturity of 90 days or less. Quality requirements generally limit investments to
U.S. dollar denominated instruments determined to present minimal credit risks
which, at the time of acquisition, are rated in the first or second rating
categories (known as "first tier" and "second tier" securities, respectively) by
the required number of NRSROs (at least two or, if only one NRSRO has rated the
security, that one NRSRO) or, if unrated by any NRSRO, are (i) comparable in
priority and security to a class of short-term securities of the same issuer
that has the required rating, or (ii) determined to be comparable in quality to
securities having the required rating. The diversification requirements provide
generally that a Money Market Fund may not at the time of acquisition invest
more than 5% of its assets in securities of any one issuer except that up to 25%
of total assets may be invested in the first tier securities of a single issuer
for three business days. Additionally, (except for Nations Tax Exempt Fund) no
more than 5% of total assets may be invested, at the time of acquisition, in
second tier securities in the aggregate, and any investment in second tier
securities of one issuer is limited to the greater of 1% of total assets or one
million dollars. Securities issued by the U.S. Government, its agencies,
authorities or instrumentalities are exempt from the quality requirements, other
than minimal credit risk. In the event that a Fund's investment restrictions or
permissible investments are more restrictive than the requirements of Rule 2a-7,
the Fund's own restrictions will govern.
How Performance Is Shown
From time to time the Funds may advertise the yield and effective yield on a
class of shares and Nations Tax Exempt Fund also may advertise the
tax-equivalent yield of a class of shares. YIELD, EFFECTIVE YIELD AND TAX
EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE.
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The "yield" of a class of shares in a Fund refers to the income generated by an
investment in such class over a seven-day period identified in the
advertisement. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by servicing agents to their
customers' accounts for automatic investment or other cash management services
will not be included in calculations of yield.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A, Investor B and Investor D Shares. Each class of shares may bear different
sales charges, shareholder servicing fees and other expenses, which may cause
the performance of a class to differ from the performance of the other classes.
Performance quotations will be computed separately for each class of a Fund's
shares. Each Fund's annual report contains additional performance information
and is available upon request without charge from the Funds' distributor or the
investor's servicing agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NationsBank has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio
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securities and maintains records relating to such purchases and sales. With
respect to Nations Tax Exempt Fund, the Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Fund, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of the first $250 million of the combined
average daily net assets of both Nations Prime Fund and Nations Treasury Fund,
plus 0.20% of the combined average daily net assets of such Funds in excess of
$250 million; and 0.40% of the average daily net assets of each of Nations
Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.18% of the average daily net assets of Nations
Prime Fund and Nations Treasury Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.055% of the average daily net assets of Nations Government
Money Market Fund, Nations Tax Exempt Fund, Nations Prime Fund, and Nations
Treasury Fund.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysts.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in
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the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager of the Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements 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 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 such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to Co-Administration
Agreements. Under the Co-Administration Agreements, First Data provides various
administrative and accounting services to the Funds, including performing
calculations necessary to determine net asset values and dividends, preparing
tax returns and financial statements and maintaining the portfolio records and
certain general accounting records for the Funds. For the services rendered
pursuant to the Administration and Co-Administration Agreements, Stephens and
First Data are entitled to receive a combined fee at the annual rate of up to
0.10% of each Fund's average daily net assets.
For the fiscal period from December 1, 1995 to March 31, 1996, after waivers,
Nations Fund Trust paid its administrators combined fees at the rate of 0.09% of
the average daily net assets of Nations Government Money Market Fund and Nations
Tax Exempt Fund.
For the fiscal period from June 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrators combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
and Nations Treasury Fund -- 0.05%.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and
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distributor. Stephens is a registered broker/dealer with principal offices at
111 Center Street, Little Rock, Arkansas 72201. Nations Fund has entered into a
distribution agreement with Stephens which provides that Stephens has the
exclusive right to distribute shares of the Funds. Stephens may pay service fees
or commissions to servicing agents that assist customers in purchasing Investor
C Shares of the Funds. See "Shareholder Servicing Plan."
NationsBank of Texas, N.A., serves as each Fund's custodian (the "Custodian").
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of each Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor C Shares are deducted from accrued income before
dividends are declared. The respective Fund's expenses include, but are not
limited to: fees paid to the Adviser, NationsBank, Stephens and First Data;
interest; Directors' or Trustees' fees; federal and state securities
registration and qualification fees; brokerage fees and commissions; costs of
preparing and printing prospectuses for regulatory purposes and for distribution
to existing shareholders; charges of the Custodian and Transfer Agent; certain
insurance premiums; outside auditing and legal expenses; costs of shareholder
reports and shareholder meetings; other expenses which are not expressly assumed
by the Adviser, NationsBank, Stephens or First Data under their respective
agreements with Nations Fund; and any extraordinary expenses. Investor C Shares
may bear certain class specific retail transfer agency expenses and also bear
certain additional shareholder service costs. Any general expenses of Nations
Fund Trust and/or of Nations Fund, Inc. that are not readily identifiable as
belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bears to the assets
of Nations Fund Trust and/or Nations Fund, Inc. or in such other manner as the
Board of Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor B Shares, Investor C Shares and Investor D Shares. This
Prospectus relates only to the Investor C Shares of Nations Government Money
Market Fund and Nations Tax Exempt Fund of Nations Fund Trust. To obtain
additional information regarding the Funds' other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or
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<PAGE>
reclassify any class of shares into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund and
shareholders of a fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class of shares. See the SAI for examples of instances where
the 1940 Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or portfolios, each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of the Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To obtain additional information regarding the Funds' other classes
of shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of Directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of Nations Fund, Inc.'s outstanding shares.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15,, 1996, NationsBank and its affiliates possessed or shared power
to dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings, except when required by
the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus
con-
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cerning the other investment company. Nations Fund Trust and Nations Fund, Inc.
have entered into an indemnification agreement that creates a right of
indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into shareholder servicing
agreements ("Servicing Agreements") with Stephens ("Servicing Agents").
Investors exchanging Investor N Shares of a non-money market fund of the Nations
Fund Family for Investor C Shares of the Money Market Funds and investors who
have entered into managed account arrangements with a Servicing Agent are
eligible to invest in Investor C Shares of the Funds. Under a managed account
arrangement investors would be provided with some or all of the following types
of services or features: automated investment of excess account cash balances;
debit cards; checking privileges; direct deposit; automatic bill payment;
federal funds transfer; travelers checks; charge card protection; and periodic
summary account statements.
Investor C Shares of the Money Market Funds are purchased at net asset value per
share without the imposition of a sales charge. Purchases may be effected only
on days on which the Federal Reserve Bank of New York is open for business (a
"Business Day").
Servicing Agents will perform various shareholder services for their customers
("Customers") who from time to time own of record or beneficially Investor C
Shares. From time to time the Servicing Agents and the Funds may agree to
voluntarily reduce the fees payable for shareholder services. See "Shareholder
Servicing Plan."
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Funds and share certificates
are not issued.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund). Absent prior arrangement with Stephens or the Transfer Agent,
purchase orders received after such time on any given day will not be accepted;
notice thereof will be given to the Servicing Agent transmitting the order, and
any funds received will be returned promptly to the sending Servicing Agent. Any
late purchase orders that are not rejected pursuant to such a prior arrangement
will be executed on the following Business Day. If federal funds are not
available by 4:00 p.m., Eastern time, the order will be canceled. Investor C
Shares are purchased at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent.
The Servicing Agents are responsible for transmitting orders for purchases by
their Customers and delivering required funds on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Fund.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a
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signature guarantee will be required. Shareholders should be aware that by using
the telephone transaction feature, such shareholders may be giving up a measure
of security that they may have if they were to authorize requests in writing
only. A shareholder may bear the risk of any resulting losses from a telephone
transaction. Nations Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if Nations Fund and its
service providers fail to employ such measures, they may be liable for any
losses due to unauthorized or fraudulent instructions. Nations Fund requires a
form of personal identification prior to acting upon instructions received by
telephone and provides written confirmation to shareholders of each telephone
share transaction. In addition, Nations Fund reserves the right to record all
telephone conversations.
Shareholder Servicing Plan
The Directors and Trustees have approved a Shareholder Servicing Plan (the
"Servicing Plan") with respect to Investor C Shares of each Fund. Pursuant to
the Servicing Plan, a Fund may pay Servicing Agents that have entered into a
Servicing Agreement with Nations Fund for certain shareholder support services
that are provided by the Servicing Agents. Payments under the Servicing Plan
will be calculated daily and paid monthly at a rate set from time to time by the
Board of Directors or the Board of Trustees, provided that the annual rate may
not exceed 0.25% of the average daily net asset value of a Fund's Investor C
Shares. The shareholder services provided by Servicing Agents may include
general shareholder liaison services; pro-
cessing purchase, exchange and redemption requests from Customers and placing
orders with Stephens or the Transfer Agent; processing dividend and distribution
payments from a Fund on behalf of Customers; providing sales information
periodically to Customers, including information showing their positions in
Investor C Shares; providing sub-accounting with respect to Investor C Shares
beneficially owned by Customers or the information necessary for sub-accounting;
responding to inquiries from Customers concerning their investment in Investor C
Shares; arranging for bank wires; and providing such other similar services as
may be reasonably requested.
Nations Fund understands that Servicing Agents may charge fees to their
Customers who are the owners of Investor C Shares for additional services
provided in connection with their Customers' accounts. These fees would be in
addition to any amounts which may be received by Servicing Agents under a
Servicing Agreement with Nations Fund. The Servicing Agreements require
Servicing Agents to disclose to their Customers any compensation payable to the
Servicing Agents by Nations Fund and any other compensation payable by Customers
in connection with the investment of their assets in Investor C Shares.
Customers should read this Prospectus in light of the terms governing their
accounts with their Servicing Agents.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Servicing Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent. The Servicing Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
pro-
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ceeds on a timely basis. No charge for wiring redemption payments is imposed by
Nations Fund.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and Nations
Government Money Market Fund), and payment will normally be wired the same day
to Servicing Agents. Nations Fund reserves the right to wire redemption proceeds
within three Business Days after receiving the redemption orders if, in the
judgment of NationsBank, an earlier payment could adversely impact a Fund.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Redemption orders received by Stephens or by the Transfer Agent after 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), will be processed on the next Business
Day.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Servicing Agent pursuant to arrangements between the Servicing Agent and its
Customers. Nations Fund also may redeem shares of a Fund involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
How To Exchange Shares
SHARES PURCHASED DIRECTLY THROUGH A SERVICING AGENT: Investor C Shares of a
Money Market Fund purchased directly through a Servicing Agent may not be
exchanged for shares of another fund of Nations Fund.
SHARES ACQUIRED THROUGH AN EXCHANGE: The exchange feature enables a shareholder
who acquires Investor C Shares of a Money Market Fund through an exchange of
Investor N Shares of a non-money market fund or a permissible exchange of
Investor A Shares of Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund to re-exchange such shares for Investor C Shares of
another Money Market Fund, Investor N Shares of any non-money market fund of
Nations Fund (except Nations Short-Term Income Fund and Nations Short-Term
Municipal Income Fund) or for Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund. A re-exchange of Investor C
Shares for shares of another fund is made on the basis of the next calculated
net asset value per share of each fund after the exchange order is received.
If a shareholder acquires Investor C Shares of a Money Market Fund through an
exchange, the acquired shares (and any other Investor A or Investor C Shares
acquired through a re-exchange of such shares) will remain subject to the
contingent deferred sales charge ("CDSC") schedule applicable to the original
Investor N Shares purchased.
The holding period (for the purpose of determining the applicable rate of the
CDSC) does not
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<PAGE>
accrue as long as the investor holds Investor C Shares of a Money Market Fund or
Investor A Shares of Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund. As a result, the CDSC that is ultimately charged upon
redemption is based upon the total holding period of Investor N Shares of a
non-money market fund that charges a CDSC.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently sixty days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective(s) and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within ninety days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
Investor C Shares may be exchanged by directing a request directly to the
Servicing Agent through which the original Investor C Shares were acquired or in
some cases to Stephens or the Transfer Agent. Your exchange feature may be
governed by your account agreement with your Servicing Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing your
request directly to the Servicing Agent through which the original shares were
purchased. Investors should consult their Servicing Agent or Stephens for
further information regarding exchanges.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (1:00 p.m., Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), on each Business Day. Currently, the
days on which the Federal Reserve Bank of New York is closed (other than
weekends) are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day,
Memorial Day (observed), Independence Day, Labor Day, Columbus Day, Thanksgiving
Day and Christmas Day. The assets of each Money Market Fund are valued based
upon the amortized cost method. Although Nations Fund seeks to maintain the net
asset value per share of these Funds at $1.00, there can be no assurance that
their net asset value per share will not vary.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of each Fund
are declared daily to shareholders at 3:00 p.m., Eastern time (1:00 p.m.,
Eastern time, with respect to Nations Tax Exempt Fund and Nations Government
Money Market Fund), on the day of declaration. Investor C Shares begin earning
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Investor C
Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Funds' Transfer Agent and will become
effective with respect to dividends paid after its receipt. Your dividend
election may be governed by your account agreement with your Servicing Agent.
Dividends are paid in cash within five Business Days after a shareholder's
complete redemption of his/her Investor C Shares in a Fund. To the extent that
there are any net short-term capital gains, they will be paid at least annually.
Each Fund's net investment income available for distribution to the holders of
Investor C Shares will be reduced by the amount of shareholder servicing fees
paid to Servicing Agents and by the amount of retail transfer agency fees
payable to the Transfer Agent applicable to Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). Such
qualification relieves a Fund of liability for Federal income tax on amounts
distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an
Individual Retirement Account is generally deferred under the Code.) These
distributions will not qualify for the dividends received deduction for
corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends (and capital gains, if applicable) paid during the prior year.
Such dividends (and capital gains) may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the
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shareholder is subject to backup withholding. Amounts withheld are applied to
the shareholder's Federal tax liability, and a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of taxes. Federal
law also requires the Fund to withhold 30% or the applicable tax treaty rate
from dividends paid to certain nonresident alien, non-U.S. partnership and
non-U.S. corporation shareholder accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, the Nations Tax
Exempt Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
federal gross income under Section 103(a) of the Code unless under the
circumstances applicable to the particular shareholder the exclusion would be
disallowed. (See the related SAI under "Additional Information Concerning
Taxes.") Distributions of net investment income by the Nations Tax Exempt Fund
may be taxable to investors under state or local law even though a substantial
portion of such distribution may be derived from interest on tax-exempt
obligations which, if realized directly, would be exempt from such income taxes.
If Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. To the extent, if any, dividends paid to
shareholders are derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from Federal income tax and
also may be subject to state and local taxes.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets 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. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the related SAI.
Non-mortgage-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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
The Nations Prime Fund may invest up to 100% of its assets in obligations issued
by banks. All Funds (except Nations Prime Fund) will limit their investments in
bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase. The Nations Prime Fund may invest in U.S. dollar-denominated
obligations issued by foreign branches of domestic banks ("Eurodollar"
obligations) and domestic branches of foreign banks ("Yankee dollar"
obligations).
Eurodollar, Yankee dollar, and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations
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may be more difficult because there may be less publicly available information
concerning foreign issuers, there may be difficulties in enforcing a judgment
against a foreign issuer or the accounting, auditing and financial reporting
standards, practices and requirements applicable to foreign issuers may differ
from those applicable to domestic issuers. In addition, foreign banks are not
subject to examination by U.S. Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. Advances under the agreement are taken primarily for temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might requre the untimely disposition of securities.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, the Funds may use reverse repurchase agreements
for the purpose of investing the proceeds in tri-party repurchase agreements.
Generally, the effect of such a transaction is that a Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
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 Fund is 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 Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The Fund
only enters into reverse repurchase agreements (and repurchase agreements) with
counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Fund does not establish and
maintain a segregated account (as described above). 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, a Fund's asset coverage and other factors at the time of a
reverse repurchase, the Fund may not establish a segregated account when the
Adviser believes it is not in the best interests of the Fund to do so. In this
case, such reverse repurchase agreements will be considered borrowings subject
to the asset coverage described above.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
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COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations 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 objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
GUARANTEED INVESTMENT CONTRACTS: Guaranteed investment contracts, investment
contracts or funding agreements each referred to as a GICs 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 GICs provide that this guaranteed interest will
not be less than a certain minimum rate. 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
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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.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be required by the states in
which the appropriate Fund sells its shares. Repurchase agreements, time
deposits and GICs that do not provide for payment to a Fund within seven days
after notice, and illiquid restricted securities are subject to the limitation
on illiquid securities. In addition, interests in privately arranged loans
acquired by the Nations Prime Fund may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by the Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less, or instruments
subject to demand features or resets if the remaining maturity is more than 397
days. Money market instruments may include, among other instruments, certain
U.S. Treasury Obligations, U.S. Government Obligations, bank instruments,
commercial instruments, repurchase agreements and municipal
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securities. Such instruments are described in this Appendix A.
MUNICIPAL SECURITIES: 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 instrument. 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. 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.
Municipal Securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Funds' Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Funds expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. 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.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a
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"when-issued" basis and reserves the right to engage in "put" transactions on a
daily, weekly or monthly basis. Securities purchased on a "when-issued" basis
are subject to settlement within 45 days of the purchase date. The interest rate
realized on these securities is fixed as of the purchase date and no interest
accrues to the Fund before settlement. These securities are subject to market
fluctuation due to changes in market interest rates. The Funds will only commit
to purchase a security on a when-issued basis with the intention of actually
acquiring the security and will segregate sufficient liquid assets to meet its
purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have value to the Fund. In certain cases a premium
may be paid for put features. A premium paid will have the effect of reducing
the yield otherwise payable on the underlying security. The purpose of engaging
in transactions involving puts is to maintain flexibility and liquidity to
permit the Fund to meet redemptions and remain as fully invested as possible in
municipal securities. The Funds will limit their put transactions to
institutions which the Adviser believes present minimal credit risk, pursuant to
guidelines adopted by the Boards. Nations Tax Exempt Fund may invest more than
40% of its portfolio in puts or other securities guaranteed by banks and other
financial institutions. Accordingly, changes in the credit quality of these
institutions could cause losses to the Fund and affect its share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in municipal securities that are
payable 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.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all out-
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standing loans of a Fund may not exceed 30% of the value of its total assets.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered illiquid if there is no secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued", "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
28
<PAGE>
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. 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 and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
29
<PAGE>
The following summarizes the highest three ratings used by Fitch for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
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 two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but
30
<PAGE>
the relative degree of safety is not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest 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 very high.
AA -- The second highest category; indicates a superior 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.
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 degree of 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".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
31
<PAGE>
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
32
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND AND NATIONS DISCIPLINED EQUITY FUND
(the "Funds") of Nations Fund Trust and Nations
Fund, Inc., each an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the
Funds -- Investor C Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Balanced Assets
Fund
GROWTH FUNDS:
Nations Capital Growth Fund
Nations Emerging Growth
Fund
Nations Disciplined Equity
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 12
How Objectives Are Pursued 13
How Performance Is Shown 19
How The Funds Are Managed 20
Organization And History 24
About Your Investment
How To Buy Shares 26
How To Redeem Shares 27
How To Exchange Shares 29
Shareholder Servicing And Distribution Plans 30
How The Funds Value Their Shares 31
How Dividends And Distributions Are Made;
Tax Information 32
Appendix A -- Portfolio Securities 33
Appendix B -- Description Of Ratings 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE
FUNDS' SAIS INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY NATIONS FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY NATIONS FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
GROWTH AND INCOME FUNDS
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is to seek
current income and growth of capital by investing primarily
in companies with above average dividend yields.
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income securities.
GROWTH FUNDS
(BULLET) Nations Capital Growth Fund's investment objective is to seek growth
of capital by investing in companies that are believed to have
superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment objective is to seek
capital appreciation by investing in emerging growth companies that
are believed to have superior long-term earnings growth prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective is to
seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per
share.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare and pay dividends from
net investment income each calendar quarter. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities, including U.S. Government
Obligations, are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. The value of a Fund's investments in
debt securities 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Fund's
investments constitute deriva-
3
<PAGE>
tive securities. Certain types of derivative securities can, under
certain circumstances, significantly increase an investor's exposure to
market or other risks. For a discussion of these and other factors, see
"How Objectives Are Pursued -- Risk Considerations" and "Appendix
A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. Minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Equity Balanced Capital Nations Emerging
Value Fund Income Fund Assets Fund Growth Fund Growth Fund
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None None None
Deferred Sales Charge (as a
percentage of the lower of the
original purchase price or
redemption proceeds)1 .50% .50% .50% .50% .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees .75% .70% .75% .75% .75%
Rule 12b-1 Fees (After Fee
Waivers) .25% .25% .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses (After Expense
Reimbursements) .21% .20% .25% .21% .24%
Total Operating Expenses (After
Fee Waivers and Expense
Reimbursements) 1.46% 1.40% 1.50% 1.46% 1.49%
</TABLE>
<TABLE>
<CAPTION>
Nations
Disciplined
Equity Fund
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a
percentage of the lower of the
original purchase price or
redemption proceeds)1 .50%
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees .75%
Rule 12b-1 Fees (After Fee
Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses (After Expense
Reimbursements) .27%
Total Operating Expenses (After
Fee Waivers and Expense
Reimbursements) 1.52%
</TABLE>
1A Deferred Sales Charge, if any, is imposed only with respect to Investor C
Shares redeemed within one year of purchase. Investor C Shares purchased prior
to January 1, 1996 will continue to be subject to the 1.00% Deferred Sales
Charge.
5
<PAGE>
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Equity Balanced Capital Growth Emerging Growth
Value Fund Income Fund Assets Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 20 $ 19 $ 20 $ 20 $ 20
3 Years $ 46 $ 44 $ 47 $ 46 $ 47
5 Years $ 80 $ 77 $ 82 $ 80 $ 81
10 Years $ 175 $ 168 $ 179 $ 175 $ 178
</TABLE>
<TABLE>
<CAPTION>
Nations
Disciplined
Equity Fund
<S> <C>
1 Year $ 20
3 Years $ 48
5 Years $ 83
10 Years $ 181
</TABLE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Funds, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
Nations Nations Nations Nations
Nations Equity Balanced Capital Growth Emerging Growth
Value Fund Income Fund Assets Fund Fund Fund
<S> <C> <C> <C> <C> <C>
1 Year $ 15 $ 14 $ 15 $ 15 $ 15
3 Years $ 46 $ 44 $ 47 $ 46 $ 47
5 Years $ 80 $ 77 $ 82 $ 80 $ 81
10 Years $ 175 $ 168 $ 179 $ 175 $ 178
</TABLE>
<TABLE>
<CAPTION>
Nations
Disciplined
Equity Fund
<S> <C>
1 Year $ 15
3 Years $ 48
5 Years $ 83
10 Years $ 181
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. The
figures in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. Absent fee waivers and expense reimbursements "Rule 12b-1
Fees" and "Total Operating Expenses" would have been as follows: Nations Value
Fund -- .75% and 1.96%, respectively; Nations Equity Income Fund -- .75% and
1.90%, respectively; Nations Balanced Assets Fund -- .75% and 2.00%,
respectively; Nations Capital Growth Fund -- .75% and 1.96%, respectively;
Nations Emerging Growth Fund -- .75% and 1.99%, respectively; and Nations
Disciplined Equity Fund -- .75% and 2.02%, respectively. There is no assurance
that any fee waivers and reimbursements will continue beyond the current fiscal
year. If fee waivers and/or reimbursements are discontinued, the amounts
contained in the "Examples" above may increase. Long-term shareholders of the
Funds could pay more in sales charges than the economic equivalent of the
maximum front-end sales charges applicable to mutual funds sold by members of
the National Association of Securities Dealers, Inc. For more complete
descriptions of the Funds' operating expenses, see "How The Funds Are Managed."
For a more complete description of the Rule 12b-1 and shareholder servicing fees
payable by the Funds, see "Shareholder Servicing And Distribution Plans."
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS VALUE FUND
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.09 $ 12.90 $ 13.64 $ 12.41
Net investment income 0.04 0.13 0.12 0.13
Net realized and unrealized gain/(loss) on
investments 1.05 3.88 (0.22) 1.32
Net increase/(decrease) in net asset value from
operations 1.09 4.01 (0.10) 1.45
Distributions:
Dividends from net investment income (0.06) (0.15) (0.10) (0.13)
Distributions from net realized capital gains (0.62) (0.67) (0.54) (0.09)
Total dividends and distributions (0.68) (0.82) (0.64) (0.22)
Net asset value, end of period $ 16.50 $ 16.09 $ 12.90 $ 13.64
Total return++ 6.99% 33.15% (0.92)% 11.85%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,633 $ 4,185 $ 2,983 $ 2,997
Ratio of operating expenses to average net
assets 1.58%+ 1.94% 1.93% 1.96%
Ratio of net investment income to average net
assets 0.68%+ 0.90% 0.85% 0.98%
Portfolio turnover rate 12% 63% 75% 64%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.58%+ 1.94% 1.93% 1.97%
Net investment income per share without waivers
and/or expense reimbursements $ 0.04 $ 0.13 $ 0.12 $ 0.13
Average commission rate paid (b) $ 0.0648 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 11.63
Net investment income 0.07
Net realized and unrealized gain/(loss) on
investments 0.78
Net increase/(decrease) in net asset value from
operations 0.85
Distributions:
Dividends from net investment income (0.07)
Distributions from net realized capital gains --
Total dividends and distributions (0.07)
Net asset value, end of period $ 12.41
Total return++ 7.33%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,286
Ratio of operating expenses to average net
assets 1.98%+
Ratio of net investment income to average net
assets 1.22%+
Portfolio turnover rate 60%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.98%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.07
Average commission rate paid (b) N/A
</TABLE>
* Nations Value Fund Investor C Shares commenced operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EQUITY INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 05/31/95 05/31/94 05/31/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.83 $ 11.47 $ 12.04 $ 11.13
Net investment income 0.21 0.32 0.28 0.32
Net realized and unrealized gain on investments 1.78 1.08 0.21 1.32
Net increase in net asset value from operations 1.99 1.40 0.49 1.64
Distributions:
Dividends from net investment income (0.26) (0.31) (0.25) (0.28)
Distributions from net realized capital gains (0.37) (0.73) (0.81) (0.45)
Total dividends and distributions (0.63) (1.04) (1.06) (0.73)
Net asset value, end of period $ 13.19 $ 11.83 $ 11.47 $ 12.04
Total return++ 17.20% 13.49% 3.96% 15.31%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,612 $ 4,278 $ 4,221 $ 4,377
Ratio of operating expenses to average net assets 1.75%+ 1.92% 1.94% 1.92%+
Ratio of net investment income to average net assets 1.99%+ 2.75% 2.41% 2.37%+
Portfolio turnover rate 59% 158% 116% 55%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.75%+ 1.93% 1.95% 2.04%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.21 $ 0.32 $ 0.28 $ 0.31
Average commission rate paid (b) $ 0.0287 N/A N/A N/A
</TABLE>
* Nations Equity Income Fund Investor C Shares commenced operations on June
17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
8
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS BALANCED ASSETS FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.61 $ 10.38 $ 10.82 $ 10.23
Net investment income 0.09 0.26 0.14 0.23
Net realized and unrealized gain/(loss) on
investments 0.45 2.21 (0.43) 0.59
Net increase/(decrease) in net asset value from
operations 0.54 2.47 (0.29) 0.82
Distributions:
Dividends from net investment income (0.14) (0.22) (0.15) (0.23)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.55) (0.24) (0.15) (0.23)
Net asset value, end of period $ 11.60 $ 12.61 $ 10.38 $ 10.82
Total return++ 4.71% 24.03% (2.72)% 8.06%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,187 $ 992 $ 951 $ 1,196
Ratio of operating expenses to average net
assets 1.62%+ 1.99% 1.98% 1.90%
Ratio of net investment income to average net
assets 2.29%+ 2.25% 1.31% 1.82%
Portfolio turnover rate 83% 174% 156% 50%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.62%+ 1.99% 1.99% 1.97%
Net investment income per share without waivers
and/or expense reimbursements $ 0.09 $ 0.26 $ 0.14 $ 0.22
Average commission rate paid (b) $ 0.0598 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.01
Net realized and unrealized gain/(loss) on
investments 0.22#
Net increase/(decrease) in net asset value from
operations 0.23
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions --
Net asset value, end of period $ 10.23
Total return++ 2.30%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 156
Ratio of operating expenses to average net
assets 1.30%+
Ratio of net investment income to average net
assets 2.85%+
Portfolio turnover rate 79%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.05%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.01
Average commission rate paid (b) N/A
</TABLE>
* Nations Balanced Assets Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end
was November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
9
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.09 $ 11.14 $ 11.01 $ 10.67
Net investment income/(loss) 0.00(b) (0.03) (0.02) (0.00)(b)
Net realized and unrealized gain on investments 0.36 3.24 0.15 0.38
Net increase in net asset value from operations 0.36 3.21 0.13 0.38
Distributions:
Dividends from net investment income -- -- -- (0.03)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) (0.01)
Total dividends and distributions (1.19) (0.26) (0.00)(b) (0.04)
Net asset value, end of period $ 13.26 $ 14.09 $ 11.14 $ 11.01
Total return++ 2.86% 29.61% 1.22% 3.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,655 $ 3,322 $ 2,394 $ 2,919
Ratio of operating expenses to average net
assets 1.58%+ 1.98% 1.90% 1.80%
Ratio of net investment income/(loss) to average
net assets (0.24)%+ (0.29)% (0.15)% (0.16)%
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.58%+ 1.98% 1.91% 1.89%
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ (0.00)(b) $ (0.03) $ (0.02) $ 0.00(b)
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income/(loss) (0.00)(b)
Net realized and unrealized gain on investments 0.67#
Net increase in net asset value from operations 0.67
Distributions:
Dividends from net investment income --
Distributions from net realized capital gains --
Total dividends and distributions 0.00(b)
Net asset value, end of period $ 10.67
Total return++ 6.70%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 406
Ratio of operating expenses to average net
assets 1.30%+
Ratio of net investment income/(loss) to average
net assets 0.33%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.05%+
Net investment income/(loss) per share without
waivers and/or expense reimbursements $ 0.00(b)
Average commission rate paid (c) N/A
</TABLE>
* Nations Capital Growth Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
10
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96#(a) 11/30/95 11/30/94# 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.87 $ 11.20 $ 10.78 $ 9.89
Net investment income/(loss) (0.03) (0.08) (0.14) (0.09)
Net realized and unrealized gain on investments 1.22 3.15 0.70 0.98
Net increase in net asset value from operations 1.19 3.07 0.56 0.89
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14) --
Total dividends and distributions (1.50) (0.40) (0.14) --
Net asset value, end of period $ 13.56 $ 13.87 $ 11.20 $ 10.78
Total return++ 9.64% 28.67% 5.19% 9.00%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 936 $ 805 $ 542 $ 469
Ratio of operating expenses to average net assets 1.61%+ 1.98% 2.01% 1.80%+
Ratio of net investment income/(loss) to average net assets (0.68)% (0.92)% (1.29)% (1.15)%+
Portfolio turnover rate 39% 139% 129% 159%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.61%+ 1.98% 2.01% 2.01%+
Net investment income/(loss) per share without waivers and/or
expense reimbursements $ (0.03) $ (0.08) $ (0.12) $ (0.11)
Average commission rate paid (b) $ 0.0599 N/A N/A N/A
</TABLE>
* Nations Emerging Growth Fund Investor C Shares commenced operations on
December 18, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# The amount shown at this caption for each share outstanding throughout the
period may not accord with the change in the aggregate gains and losses in
the portfolio securities for the period because of the timing of purchases
and withdrawals of shares in relation to the fluctuating market value of the
portfolio.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
11
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.97 $ 14.08
Net investment income/(loss) 0.01 (0.00)(b)
Net realized and unrealized gain/(loss) on investments 0.35 2.92
Net increase/(decrease) in net asset value from operations 0.36 2.92
Distributions:
Dividends from net investment income -- (0.03)
Distributions from net realized capital gains (0.23) --
Return of capital -- --
Total dividends and distributions (0.23) (0.03)
Net asset value, end of period $ 17.10 $ 16.97
Total return++ 2.19% 20.78%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 283 $ 322
Ratio of operating expenses to average net assets 1.65%+ 2.30%+
Ratio of net investment income/(loss) to average net assets 0.19%+ (0.15)%+
Portfolio turnover rate 47% 124%
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.65%+ 2.30%+
Net investment income/(loss) per share without waivers and/or expense reimbursements $ 0.01 $ (0.00)(b)
Average commission rate paid (c) $ 0.0627 N/A
</TABLE>
* Nations Disciplined Equity Fund Investor C Shares commenced operations on May
10, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
12
<PAGE>
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower price-to-
earnings ratios are more likely to provide better opportunities for capital
appreciation. This "value" approach generally produces a dividend yield greater
than the market average. The Adviser will attempt to temper risk by broad
diversification among economic sectors and industries. Through this strategy,
the Fund pursues above-average returns while seeking to avoid above-average
risks.
The Fund invests under normal market conditions at least 65% of its total assets
in common stocks. In addition to common stocks, the Fund also may invest in
preferred stocks, securities convertible into common stock, and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in obligations issued or guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade
securities of domestic companies. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by
Moody's Investors Service, Inc. ("Moody's")) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by the 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
13
<PAGE>
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.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (I.E., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories (E.G., rated "BBB" by
S&P) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (E.G. rated "BB" by S&P), or if not rated,
are of equivalent investment quality as determined by the Adviser. Non-
investment grade debt securities are sometimes referred to as "high yield bonds"
or "junk bonds." They tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest up to 20%
of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant.
14
<PAGE>
NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset classes in which the Fund
principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as mortgage-backed securities.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"),
or Thomson BankWatch, Inc. ("BankWatch") or, if unrated, determined by the
Adviser to be comparable in quality to instruments so rated. Obligations with
the lowest investment grade rating (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations. See
"Appendix B" for a description of these ratings designations. Subsequent to its
purchase by the 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.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant. For more information concerning these instruments, see
"Appendix A."
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above-average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above-average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
15
<PAGE>
In addition, the Fund's investment program enables it to invest in the following
types of companies:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Through intensive research, visits to many companies each year, and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above-average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant. For additional information concerning
these instruments and the Fund's investment practices, see "Appendix A."
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may
16
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invest up to 20% of its total assets in foreign securities.
NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Fund seeks to provide investors with long-term
capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by a nationally recognized statistical
rating organization or, if not rated, are of equivalent quality as determined by
the Adviser). Obligations rated in the lowest of the top four investment grade
rating categories have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments and
money market instruments.
GENERAL: Each Fund 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 ( the "CFTC") and options thereon for
market exposure risk management. The Nations Balanced Assets Fund also may
engage in dollar roll transactions. Each Fund may lend its portfolio securities
to qualified institutional investors. Each Fund also may invest in restricted,
private placement and other illiquid securities and securities issued by other
investment companies, consistent with the Fund's investment objective and
policies. Each Fund may invest in real estate investment trust securities. For
more information concerning these and other instruments in which the Funds may
invest and their investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the Funds will purchase portfolio securities for
capital
apprecia-
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tion or investment income, or both, and not for short-term trading profits. For
the Funds' portfolio turnover rates, see "Financial Highlights." If a Fund's
annual portfolio turnover rate exceeds 100%, it may result in higher costs to
the Fund, including brokerage commissions or dealer markups and other
transaction costs on the sale of securities and the reinvestment in other
securities. Portfolio turnover also can generate short-term capital gains tax
consequences.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
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 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.
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 Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's
sharehold-
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<PAGE>
ers. If the investment objective or policies of a Fund change, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current positions and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of a Fund (as stated in the advertisement) that
would equate an initial amount invested at the beginning of a stated period to
the ending redeemable value of the investment (reflecting the deduction of any
applicable contingent deferred sales charge ("CDSC")), assuming the reinvestment
of all dividend and capital gains distributions. Aggregate total return reflects
the total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing the Funds' investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Funds will not be included in calculations of
total return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investor's selling agent.
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<PAGE>
How The Funds Are Managed
The business and affairs of Nations Fund Trust and Nations Fund, Inc. are
managed under the direction of their Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc., serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
the Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.75% of the average daily net assets of each
of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
and 0.75% of the first $100 million of the Nations Equity Income Fund's average
daily net assets, plus 0.70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus 0.60% of the Fund's average daily net
assets in excess of $250 million.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.25% of Nations Value Fund's, Nations Balanced
Assets Fund's, Nations Capital Growth Fund's, Nations Emerging Growth Fund's and
Nations Disciplined Equity Fund's average daily net assets; and 0.20% of Nations
Equity Income Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
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<PAGE>
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996 after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.67% of the average daily net assets of Nations
Equity Income Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations Emerging
Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations Balanced
Assets Fund -- 0.25%; and Nations Equity Income Fund -- .20%.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been Portfolio
Manager for Nations Value Fund since 1989. Prior to assuming her position with
TradeStreet, she was Senior Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. Ms. Herrmann has worked for the
Investment Management Group at NationsBank since 1981 where her responsibilities
included fund management and institutional portfolio management. She attended
Virginia Wesleyan College. Ms. Herrmann holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position at TradeStreet, he was Senior Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. Mr.
Sanders has worked in the financial investment community since 1981. His past
experience includes portfolio management, equity research and financial analysis
for the Investment Management Group at NationsBank and Duke Power Company. Mr.
Sanders received a B.A. in Economics from the University of Michigan and an
M.B.A. from University of North Carolina at Charlotte. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's College and an M.B.A. from
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<PAGE>
Kent State University. She holds the Chartered Financial Analyst designation and
is a member of the Association for Investment Management and Research as well as
the North Carolina Society of Security Analysts, Inc. She is also a member of
the National Association for Petroleum Investment Analysts and the World Affairs
Council of Washington, D.C.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet, and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been Portfolio Manager for Nations Emerging Growth
Fund since 1992. Prior to assuming his position with TradeStreet, he was Senior
Vice President and Senior Portfolio Manager for the Investment Management Group
at NationsBank. He has worked in the investment community since 1968. His past
experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Disciplined Equity Fund.
Mr. Moser has been the Portfolio Manager of the Nations Disciplined Equity Fund
since 1995. Prior to assuming his position with TradeStreet, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
He has worked in the investment community since 1980. Past experience includes
fund analysis and portfolio management for National Bank of Detroit. Mr.
Williams received a B.S. in Accounting from East Carolina University, Summa Cum
Laude and an M.B.A. from Indiana University. He holds the Chartered Financial
Analyst designation, is on the Advisory Board of Indiana University's Investment
Management Academy, and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements 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 federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, 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.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant
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<PAGE>
to the terms of the Administration Agreements, Stephens provides various
administrative and corporate secretarial services to the Funds, including
providing general oversight of other service providers, office space, utilities
and various legal and administrative services in connection with the
satisfaction of various regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of the Funds, preparing tax returns and financial
statements and maintaining the portfolio records and certain of the general
accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the indicated rate of the
following Funds' average daily net assets: Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund, and
Nations Balanced Assets Fund -- 0.10%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Equity Income Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of each Fund. NationsBank of Texas is located at 1401
Elm Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
23
<PAGE>
qualification fees; brokerage fees and commissions; cost of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodians and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings, other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor C Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust and/or Nations Fund, Inc. that are not readily
identifiable as belonging to a particular investment portfolio are allocated
among all portfolios in the proportion that the assets of a portfolio bears to
the assets of Nations Fund Trust and Nations Fund, Inc. or in such other manner
as the relevant Board of Trustees or Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. This Prospectus relates only to
the Investor C Shares of Nations Capital Growth Fund, Nations Emerging Growth
Fund, Nations Disciplined Equity Fund, Nations Value Fund and Nations Balanced
Assets Fund of Nations Fund Trust. To obtain additional information regarding
the Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of
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Regulations provides that special meetings of shareholders shall be called at
the written request of the shareholders entitled to vote at least 10% of the
outstanding shares of Nations Fund Trust entitled to be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations Equity Income Fund of Nations Fund, Inc. To obtain
additional information regarding the Fund's other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
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About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a Sales Support Agreement with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for "IRA" investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
With respect to Investor C Shares, the Selling Agents have entered into Sales
Support Agreements with Stephens whereby they will provide various sales support
services to their customers ("Customers") who own Investor C Shares. In
addition, banks, broker/dealers or other financial institutions (including
certain affiliates of NationsBank) that have entered into Servicing Agreements
with Nations Fund ("Servicing Agents") will provide various shareholder services
for their Customers who own Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
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The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Funds involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a
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commercial bank or a member of a major stock exchange, unless other arrangements
satisfactory to Nations Fund have previously been made. Nations Fund may require
any additional information reasonably necessary to evidence that a redemption
has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Funds that are redeemed within one year of the date of purchase may be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC. No CDSC is imposed on
increases in net asset value above the initial purchase price, including shares
acquired by reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor C Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor C shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor C Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC. Nations Fund may terminate any
waiver of the CDSC by providing notice in the Funds' Prospectus, but any such
termination would affect only shares purchased after such termination.
Within 120 after a redemption of Investor C Shares of a Fund, a shareholder may
reinvest any portion of the proceeds of such redemption in Investor C Shares of
the same Fund. The amount which may be so reinvested is limited to an amount up
to, but not exceeding, the redemption proceeds (or to the nearest full share if
fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a
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monthly, quarterly or annual check or automatic transfer to a checking or
savings account in a stated amount of not less than $25 on or about the 10th or
25th day of the applicable month of withdrawal. Investor C Shares will be
redeemed (net of any applicable CDSC) as necessary to meet withdrawal payments.
Withdrawals will reduce principal and may eventually deplete the shareholder's
account. If a shareholder desires to establish an AWP after opening an account,
a signature guarantee will be required. An AWP may be terminated by a
shareholder on 30 days' written notice to his/her Agent or by Nations Fund at
any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquired Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market fund through an
exchange, the CDSC applicable to the original shares purchased will be applied
to any redemption of the acquired shares. Additionally, when an investor
exchanges Investor C Shares of a Nations Fund non-money market fund for shares
of the same class of another non-money market fund or Investor D Shares of any
money market fund of Nations Fund, the remaining period of time (if any) that
the CDSC is in effect will be computed from the time of the initial purchase of
the previously held Investor C Shares.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one Nations Fund
to another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th or 30th day of the applicable month.
The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, an
investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchange through the AEF). Nations Fund reserves the right to reject
any exchange request. Only shares that may legally be sold in the state of the
investor's residence may be acquired in an exchange. Only shares of a class that
is accepting investments generally may be
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acquired in an exchange. An investor may telephone an exchange request by
calling his/her Agent which is responsible for transmitting such request to
Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and Directors have
approved a Distribution Plan with respect to Investor C Shares of the Funds.
Pursuant to the Distribution Plan, the Funds may compensate or reimburse
Stephens for any activities or expenses primarily intended to result in the sale
of the Funds' Investor C Shares. Payments under the Investor C Distribution Plan
will be calculated daily and paid monthly at a rate or rates set from time to
time by the Trustees and Directors, provided that the annual rate may not exceed
0.75% of the average daily net asset value of the Funds' Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as 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 Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution 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 Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
The Trustees and Directors also have approved a shareholder servicing plan
("Servicing Plan") for the Funds which permits the Funds to compensate Servicing
Agents for services provided to their Customers that own Investor C Shares.
Payments under the Servicing Plan are calculated daily and paid monthly at a
rate or rates set from time to time by the Funds, provided that the annual rate
may not exceed 0.25% of the average daily net asset value of the Funds' Investor
C Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor C Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor C
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of
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Customers; (iv) providing information periodically to Customers showing their
positions in Investor C Shares; (v) arranging for bank wires; and (vi) providing
general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor C Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Funds during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Investor C Shares of the
Funds are eligible to receive dividends when declared, provided, however, that
the purchase order for such shares is received at least one day prior to the
dividend declaration and such shares continue to be eligible for dividends
through and including the day before the redemption order is executed.
Distributions paid by the Funds with respect to one class of shares may be
greater or less than those paid with respect to another class of shares due to
the different expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor C Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be entitled to the dividends-received
deduction on all or a portion of such Funds' dividends to the extent that a
Fund's income is derived from dividends (which, if received directly, would
qualify for such deduction) received from domestic corporations. In order to
qualify for the dividends-received deduction, a corporate shareholder must hold
the fund shares paying the dividends upon which the deduction is based for at
least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has
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notified Nations Fund that the Taxpayer Identification Number listed on a
shareholder account is incorrect according to its records, or that the
shareholder is subject to backup withholding. Amounts withheld are applied to
the shareholder's Federal tax liability, and a refund may be obtained from the
Internal Revenue Service if withholding results in overpayment of taxes. Federal
law also requires the Funds to withhold 30% or the applicable tax treaty rate
from dividends paid to certain nonresident alien, non-U.S. partnership and
non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets 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. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage-backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage-backed securities, see the related SAI.
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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations), and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
juris-
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diction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
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. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage described above. 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed
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securities, together with a commitment to purchase similar, but not identical,
securities at a future date, at the same price. In addition, a Fund is paid a
fee as consideration for entering into the commitment to purchase. 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.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: To the extent provided under "How Objectives Are
Pursued," the Funds may enter into foreign currency exchange transactions to
convert foreign currencies to and from the United States Dollar. A Fund either
enters into these transactions on a spot (I.E., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or uses forward contracts to
purchase or sell foreign currencies. A forward foreign currency exchange
contract is an obligation by a Fund to purchase or sell a specific currency at a
future date, which may be any fixed number of days from the date of the
contract.
A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, the Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of the Fund and the flexibility of the Fund to purchase additional
securities. Although forward contracts will be used primarily to protect the
Fund from adverse currency movements, they also involve the risk that
anticipated currency movements will not be accurately predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic
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developments, the possible imposition of withholding taxes on interest income,
possible seizure or nationalization of foreign deposits, the possible
establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely affect the payment of principal
and interest on such obligations. In addition, foreign issuers in general may be
subject to different accounting, auditing, reporting, and record keeping
standards than those applicable to domestic companies, and securities of foreign
issuers may be less liquid and their prices more volatile than those of
comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: To the extent provided under
"How Objectives Are Pursued" the Funds may attempt to reduce the overall level
of investment risk of particular securities and attempt to protect a Fund
against adverse market movements by investing in futures, options and other
derivative instruments. These include the purchase and writing of options on
securities (including index options) and options on foreign currencies, and
investing in futures contracts for the purchase or sale of instruments based on
financial indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
interest rate swaps, currency swaps, caps, collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the
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"1933 Act") but which can be sold to "qualified institutional buyers" in
accordance with Rule 144A and Section 4(2) under the 1933 Act. Any such security
will not be considered illiquid so long as it is determined by a Fund's Board of
Trustees or Board of Directors or the Adviser, acting under guidelines approved
and monitored by the Fund's Board, after considering trading activity,
availability of reliable price information and other relevant information, that
an adequate trading market exists for that security. To the extent that, for a
period of time, qualified institutional buyers cease purchasing such restricted
securities pursuant to Rule 144A and Section 4(2), the level of illiquidity of a
Fund holding such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Nations Equity Income Fund may invest in
lower-rated debt securities. Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: 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
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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.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. 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. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. 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.
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.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
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
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extent than it would be if its assets were not so concentrated.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker-dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on
for-
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eign commodity exchanges is not regulated by the CFTC and may be subject to
greater risks than trading on domestic exchanges. For example, some foreign
exchanges are principal markets for which no common clearing facility exists and
a trader may look only to the broker for performance of the contract. In
addition, unless a Fund hedges against fluctuations in the exchange rate between
the U.S. dollar and the currencies in which trading is done on foreign
exchanges, any profits that such Fund might realize could be eliminated by
adverse changes in the exchange rate, or the Fund could incur losses as a result
of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government Obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government Obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
Obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay prin-
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cipal for debt in this category than for those in higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only
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slightly more than for risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess 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
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operating factors and/or access to alternative sources of funds, is judged to be
"outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations." D-1 indicates very high certainty of timely payment. Liquidity
factors are excellent and supported by good fundamental protection factors. Risk
factors are considered to be minor. D-1- indicates high certainty of timely
payment. Liquidity factors are strong and supported by good fundamental
protection factors. Risk factors are very small. D-2 indicates good certainty of
timely payment. Liquidity factors and company fundamentals are sound. Although
ongoing funding needs may enlarge total financing requirements, access to
capital markets is good. Risk factors are small. D-3 indicates satisfactory
liquidity and other protection factors which qualify the issue as investment
grade. Risk factors are larger and subject to more variation. Nevertheless,
timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is very high.
AA -- The second highest category; indicates a superior ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
43
<PAGE>
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 degree of 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 ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus of 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:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
44
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Tax-Exempt Funds") of Nations
Fund Trust, an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the Tax-Exempt
Funds -- Investor C Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust is
contained in a separate Statement of Additional
Information (the "SAI"), that has been filed with
the Securities and Exchange Commission (the "SEC")
and is available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAI bears the
same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is sub-
investment adviser to the Funds. As used herein the
"Adviser" shall mean NBAI and/or TradeStreet as the
context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TAX-EXEMPT FUNDS
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Municipal Income Fund
Nations Florida Intermediate
Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate
Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate
Municipal Bond Fund
Nations Maryland Municipal
Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Tennessee Municipal
Bond Fund
Nations Texas Intermediate
Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate
Municipal Bond Fund
Nations Virginia Municipal
Bond Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo
appears here)
<PAGE>
Table Of Contents
About The
Funds
Prospectus Summary 3
Expenses Summary 6
Financial Highlights 12
Objectives 30
How Objectives Are Pursued 32
How Performance Is Shown 36
How the Funds Are Managed 36
Organization And History 40
About Your
Investment
How To Buy Shares 41
How To Redeem Shares 43
How To Exchange Shares 44
Shareholder Servicing And Distribution Plans 45
How The Funds Value Their Shares 47
How Dividends And Distributions Are Made;
Tax Information 47
Appendix A -- Portfolio Securities 49
Appendix B -- Description Of Ratings 55
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE
FUNDS' SAI INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY NATIONS FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY NATIONS FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Municipal Income Fund's investment objective is to
seek current income exempt from Federal income tax as is
consistent with prudent investment risk. Such Fund invests
primarily in investment grade obligations issued by or on
behalf of states, territories and possessions of the United
States, the District of Columbia, and their political
subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the issuer or
bond counsel, is exempt from Federal income tax.
(Bullet) Nations Short-Term Municipal Income Fund's investment
objective is to seek current income exempt from
Federal income tax consistent with minimal
fluctuation of principal. Such Fund invests primarily
in investment grade obligations issued by or on
behalf of states, territories and possessions of the
United States, the District of Columbia, and their
political subdivisions, agencies, instrumentalities
and authorities, the interest on which, in the
opinion of counsel to the issuer or bond counsel, is
exempt from Federal income tax.
(Bullet) Nations Intermediate Municipal Bond Fund's
investment objective is to seek current
income exempt from Federal income tax
consistent with moderate fluctuation of principal.
(Bullet) Nations Florida Intermediate Municipal Bond Fund's
investment objective is to seek current income
exempt from Federal income tax and the Florida state
intangibles tax consistent with moderate
fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal securities.
(Bullet) Nations Florida Municipal Bond Fund's investment
objective is to seek current income exempt from
Federal income tax and the Florida state intangibles
tax as is consistent with prudent investment risk by
investing primarily in long-term, investment
grade municipal securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and
Georgia state income taxes consistent with moderate
fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal securities.
(Bullet) Nations Municipal Bond Fund's Georgia investment objective
is to seek current income exempt from Federal and Georgia
state income taxes as is consistent with prudent investment
risk by investing primarily in long-term, investment grade
municipal securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt from
Federal and Maryland state income taxes consistent with
moderate fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal securities.
(Bullet) Nations Maryland Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and
Maryland state income taxes as is consistent with prudent
investment risk by investing primarily in long-term,
investment grade municipal securities.
3
<PAGE>
(Bullet) Nations North Carolina Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt from
Federal and North Carolina state income taxes consistent
with moderate fluctuation of principal by investing primarily
in intermediate-term, investment grade municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and North Carolina state income taxes as is consistent with
prudent investment risk by investing primarily in long-term,
investment grade municipal securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and South Carolina state income taxes
consistent with moderate fluctuation of principal by
investing primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
and South Carolina state income taxes as is consistent
with prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal income tax and the Tennessee Hall income tax
on unearned income consistent with moderate fluctuation of
principal by investing primarily in intermediate-term,
investment grade municipal securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
income tax and the Tennessee Hall income tax on unearned
income consistent with prudent investment risk by
investing primarily in long-term, investment grade
municipal securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal
income tax consistent with moderate fluctuation of principal
by investing primarily in intermediate-term, investment
grade municipal securities.
(Bullet) Nations Texas Municipal Bond Fund's investment objective
is to seek current income exempt from Federal income
tax as is consistent with prudent investment risk by investing
primarily in long- term, investment grade municipal
securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's
investment objective is to seek current income exempt
from Federal and Virginia state income taxes
consistent with moderate fluctuation of principal by
investing primarily in intermediate-term, investment
grade municipal securities.
(Bullet) Nations Virginia Municipal Bond Fund's investment objective
is to seek current income exempt from Federal and
Virginia state income taxes as is consistent with
prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities, including U.S. Government
bonds, are subject to
4
<PAGE>
interest rate risk, which is the risk that increases in market interest
rates will adversely affect a Fund's investments in debt securities.
The value of a Fund's investments in debt securities 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 which are not backed by
the United States Government are subject to credit risk, which is the
risk that the issuer may not be able to pay principal and/or interest
when due. Certain of the Funds' investments constitute derivative
securities. Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. Since the State Intermediate Municipal Bond Funds and
State Municipal Bond Funds invest primarily in securities issued by
entities located in a single state, such Funds are more susceptible to
changes in value due to political or economic changes affecting such
states or their subdivisions. For a discussion of these and other
factors, see "How Objectives Are Pursued -- Risk Considerations" and
"Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
$100 minimum subsequent investment (except for investments pursuant to
the Systematic Investment Plan). See "How To Buy Shares."
5
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in a Fund. The
following tables summarize shareholder transaction and operating expenses for
the Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor C Shares of a Fund
over specified periods.
INVESTOR C SHARES
<TABLE>
<CAPTION>
Nations Nations Nations Florida Nations Georgia
SHAREHOLDER Short-Term Intermediate Nations Intermediate Nations Florida Intermediate
TRANSACTION Municipal Municipal Bond Municipal Municipal Bond Municipal Bond Municipal Bond
EXPENSES Income Fund Fund Income Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases None None None None None None
Deferred Sales Charge (as
a percentage of the
lower of the original
purchase price or
redemption proceeds)1 .50% .50% .50% .50% .50% .50%
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of
average net assets)
Management Fees (After
Fee Waivers)2 .06% .17% .30% .14% .26% .17%
Rule 12b-1 Fees (After
Fee Waivers)2 .10% .25% .25% .25% .25% .25%
Shareholder Servicing
Fees (After Fee
Waivers)2 .25% .25% .25% .25% .25% .25%
Other Expenses .34% .33% .30% .36% .34% .33%
Total Operating Expenses
(After Fee Waivers and
Expense
Reimbursements)2 .75% 1.00% 1.10% 1.00% 1.10% 1.00%
<CAPTION>
SHAREHOLDER Nations Georgia
TRANSACTION Municipal Bond
EXPENSES Fund
<S> <C>
Sales Load Imposed on
Purchases None
Deferred Sales Charge (as
a percentage of the
lower of the original
purchase price or
redemption proceeds)1 .50%
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of
average net assets)
Management Fees (After
Fee Waivers)2 .10%
Rule 12b-1 Fees (After
Fee Waivers)2 .25%
Shareholder Servicing
Fees (After Fee
Waivers)2 .25%
Other Expenses .50%
Total Operating Expenses
(After Fee Waivers and
Expense
Reimbursements)2 1.10%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of purchase. Investor C Shares purchased prior to
January 1, 1996 will continue to be subject to the 1.00% Deferred Sales
Charge.
2 See page 10 for a discussion of the actual expenses absent such fee waivers.
6
<PAGE>
<TABLE>
<CAPTION>
Nations Nations Nations
Maryland Nations North Carolina Nations South Carolina
Intermediate Maryland Intermediate North Carolina Intermediate
SHAREHOLDER TRANSACTION Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
EXPENSES Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Charge (as a percentage
of the lower of the original
purchase price or redemption
proceeds)1 .50% .50% .50% .50% .50%
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee Waivers)2 .20% .12% .13% .23% .18%
Rule 12b-1 Fees (After Fee Waivers)2 .25% .25% .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses .30% .48% .37% .37% .32%
Total Operating Expenses (After Fee
Waivers and Expense Reimbursements)2 1.00% 1.10% 1.00% 1.10% 1.00%
<CAPTION>
Nations
South Carolina
SHAREHOLDER TRANSACTION Municipal Bond
EXPENSES Fund
<S> <C>
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage
of the lower of the original
purchase price or redemption
proceeds)1 .50%
ANNUAL FUND
OPERATING EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee Waivers)2 .10%
Rule 12b-1 Fees (After Fee Waivers)2 .25%
Shareholder Servicing Fees .25%
Other Expenses .50%
Total Operating Expenses (After Fee
Waivers and Expense Reimbursements)2 1.10%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of purchase. Investor C Shares purchased prior to
January 1, 1996 will continue to be subject to the 1.00% Deferred Sales
Charge.
2 See page 10 for a discussion of actual expenses absent such fee waivers.
7
<PAGE>
<TABLE>
<CAPTION>
Nations Nations Nations
Tennessee Nations Texas Virginia
Intermediate Tennessee Intermediate Nations Intermediate
SHAREHOLDER TRANSACTION Municipal Bond Municipal Bond Municipal Bond Texas Municipal Municipal Bond
EXPENSES Fund Fund Fund Bond Fund Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None None
Deferred Sales Charge (as a
percentage of the lower of the
original purchase price or
redemption proceeds)1 .50% .50% .50% .50% .50%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers)2 .07% .02% .11% .12% .24%
Rule 12b-1 Fees (After Fee
Waivers)2 .25% .25% .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses .13% .58% .39% .48% .26%
Total Operating Expenses
(After Fee Waivers and
Expense Reimbursements)2 1.00% 1.10% 1.00% 1.10% 1.00%
<CAPTION>
Nations
Virginia
SHAREHOLDER TRANSACTION Municipal Bond
EXPENSES Fund
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a
percentage of the lower of the
original purchase price or
redemption proceeds)1 .50%
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net
assets)
Management Fees (After Fee
Waivers)2 .16%
Rule 12b-1 Fees (After Fee
Waivers)2 .25%
Shareholder Servicing Fees .25%
Other Expenses .44%
Total Operating Expenses
(After Fee Waivers and
Expense Reimbursements)2 1.10%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of purchase. Investor C Shares purchased prior to
January 1, 1996 will continue to be subject to the 1.00% Deferred Sales
Charge.
2 See page 10 for a discussion of actual expenses absent such fee waivers.
8
<PAGE>
EXAMPLES: You would pay the following expenses on a $1,000 investment in
Investor C Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations Florida Nations Georgia
Short-Term Intermediate Intermediate Nations Florida Intermediate
Municipal Income Municipal Bond Nations Municipal Municipal Bond Municipal Bond Municipal Bond
Fund Fund Income Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 13 $ 15 $ 16 $ 15 $ 16 $ 15
3 Years $ 24 $ 32 $ 35 $ 32 $ 35 $ 32
5 Years $ 42 $ 55 $ 61 $ 55 $ 61 $ 55
10 Years $ 93 $ 122 $ 134 $ 122 $ 134 $ 122
<CAPTION>
Nations Nations
North Carolina Nations South Carolina Nations Nations Tennessee
Nations Maryland Intermediate North Carolina Intermediate South Carolina Intermediate
Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 16 $ 15 $ 16 $ 15 $ 16 $ 15
3 Years $ 35 $ 32 $ 35 $ 32 $ 35 $ 32
5 Years $ 61 $ 55 $ 61 $ 55 $ 61 $ 55
10 Years $ 134 $ 122 $ 134 $ 122 $ 134 $ 122
<CAPTION>
Nations Virginia
Nations Intermediate Nations Virginia
Texas Municipal Municipal Bond Municipal Bond
Bond Fund Fund Fund
<S> <C> <C> <C>
1 Year $ 16 $ 15 $ 16
3 Years $ 35 $ 32 $ 35
5 Years $ 61 $ 55 $ 61
10 Years $ 134 $ 122 $ 134
<CAPTION>
Nations Maryland
Nations Georgia Intermediate
Municipal Bond Municipal Bond
Fund Fund
<S> <C> <C>
1 Year $ 16 $ 15
3 Years $ 35 $ 32
5 Years $ 61 $ 55
10 Years $ 134 $ 122
<CAPTION>
Nations
Texas
Nations Tennessee Intermediate
Municipal Bond Municipal Bond
Fund Fund
<S> <C> <C>
1 Year $ 16 $ 15
3 Years $ 35 $ 32
5 Years $ 61 $ 55
10 Years $ 134 $ 122
</TABLE>
9
<PAGE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
Nations Nations Nations Florida Nations Georgia
Short-Term Intermediate Intermediate Nations Florida Intermediate
Municipal Income Municipal Bond Nations Municipal Municipal Bond Municipal Bond Municipal Bond
Fund Fund Income Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 8 $ 10 $ 11 $ 10 $ 11 $ 10
3 Years $ 24 $ 32 $ 35 $ 32 $ 35 $ 32
5 Years $ 42 $ 55 $ 61 $ 55 61 $ 55
10 Years $ 93 $ 122 $ 134 $ 122 $ 134 $ 122
<CAPTION>
Nations North Nations
Carolina Nations North South Carolina Nations Nations Tennessee
Nations Maryland Intermediate Carolina Intermediate South Carolina Intermediate
Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond Municipal Bond
Fund Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 11 $ 10 $ 11 $ 10 $ 11 $ 10
3 Years $ 35 $ 32 $ 35 $ 32 $ 35 $ 32
5 Years $ 61 $ 55 $ 61 $ 55 $ 61 $ 55
10 Years $ 134 $ 122 $ 134 $ 122 $ 134 $ 122
<CAPTION>
Nations Virginia
Nations Intermediate Nations Virginia
Texas Municipal Municipal Bond Municipal Bond
Bond Fund Fund Fund
<S> <C> <C> <C>
1 Year $ 11 $ 10 $ 11
3 Years $ 35 $ 32 $ 35
5 Years $ 61 $ 55 $ 61
10 Years $ 134 $ 122 $ 134
<CAPTION>
Nations Maryland
Nations Georgia Intermediate
Municipal Bond Municipal Bond
Fund Fund
1 Year $ 11 $ 10
3 Years $ 35 $ 32
5 Years $ 61 $ 55
10 Years $ 134 $ 122
Nations
Texas
Nations Tennessee Intermediate
Municipal Bond Municipal Bond
Fund Fund
<S> <C> <C>
1 Year $ 11 $ 10
3 Years $ 35 $ 32
5 Years $ 61 $ 55
10 Years $ 134 $ 122
</TABLE>
10
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. The
"Other Expenses" figures in the above tables for Investor C Shares of the
following Funds are based on estimated amounts for the Fund's current fiscal
year and reflect anticipated fee waivers and reimbursements: Nations Florida
Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations North
Carolina Intermediate Municipal Bond Fund, Nations North Carolina Municipal Bond
Fund, Nations South Carolina Municipal Bond Fund, Nations Tennessee Intermediate
Municipal Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Texas Municipal Bond Fund and Nations
Virginia Municipal Bond Fund. The figures for the other Funds reflect amounts
incurred during the Fund's most recent fiscal year and have been adjusted as
necessary to reflect current service provider fees. There is no assurance that
any fee waivers and reimbursements will continue beyond the current fiscal year.
If fee waivers and/or reimbursements are discontinued, the amounts contained in
the "Examples" above may increase. Long-term shareholders of a Fund could pay
more in sales charges than the economic equivalent of the maximum front-end
sales charges applicable to mutual funds sold by members of the National
Association of Securities Dealers, Inc. For more complete descriptions of the
Funds' operating expenses, see "How The Funds Are Managed." For a more complete
description of the Rule 12b-1 and shareholder servicing fees payable by the
Funds, see "Shareholder Servicing And Distribution Plans."
Absent fee waivers "Management Fees," "Rule 12b-1 Fees" and "Total Operating
Expenses" for Investor C Shares of the Funds would have been as follows: Nations
Municipal Income Fund -- .60%, .75% and 1.90%, respectively; Nations
Intermediate Municipal Bond Fund -- .50%, .75% and 1.83%, respectively; Nations
Florida Intermediate Municipal Bond Fund -- .50%, .75% and 1.86%, respectively;
Nations Florida Municipal Bond Fund -- .60%, .75% and 1.94%, respectively;
Nations Georgia Intermediate Municipal Bond Fund -- .50%, .75% and 1.83%,
respectively; Nations Georgia Municipal Bond Fund -- .60%, .75% and 2.10%,
respectively; Nations Maryland Intermediate Municipal Bond Fund -- .50%, .75%
and 1.80%, respectively; Nations Maryland Municipal Bond Fund -- .60%, .75% and
2.08%, respectively; Nations North Carolina Intermediate Bond Fund -- .50%, .75%
and 1.87%, respectively; Nations North Carolina Municipal Bond Fund -- .60%,
.75% and 1.97%, respectively; Nations South Carolina Intermediate Municipal Bond
Fund -- .50%, .75% and 1.82%, respectively; Nations South Carolina Municipal
Bond Fund -- .60%, .75% and 2.10%, respectively; Nations Tennessee Intermediate
Municipal Bond Fund -- .50%, .75% and 1.93%, respectively; Nations Tennessee
Municipal Bond Fund -- .60%, .75% and 2.18%, respectively; Nations Texas
Intermediate Municipal Bond Fund -- .50%, .75% and 1.89%, respectively; Nations
Texas Municipal Bond Fund -- .60%, .75% and 2.08%, respectively; Nations
Virginia Intermediate Municipal Bond Fund -- .50%, .75% and 1.76%, respectively;
and Nations Virginia Municipal Bond Fund -- .60%, .75% and 2.04%, respectively.
Absent fee waivers and expense reimbursements, "Management Fees," "Rule 12b-1
Fees," "Shareholder Servicing Fees," "Other Expenses" and "Total Operating
Expenses" for Investor C Shares of Nations Short-Term Municipal Income Fund
would have been .50%, .75%, .25% and 1.84%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
11
<PAGE>
Financial Highlights
The following audited financial information has been derived from the financial
statements of Nations Fund Trust. Price Waterhouse LLP, is the independent
accountant to Nations Fund Trust. The reports of Price Waterhouse LLP for
Nations Fund Trust's most recent fiscal year accompany the financial statements
for such period and are incorporated by reference in the SAI, which is available
upon request. Shareholders of a Fund will receive unaudited semi-annual reports
describing the Fund's investment operations and annual financial statements
audited by the Funds' independent accountant.
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTORS C SHARES 03/31/96(b) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.69 $ 9.84
Net investment income 0.14 0.42 0.19
Net realized and unrealized gain/(loss) on investments (0.05) 0.34 (0.15)
Net increase in net assets value from operations 0.09 0.76 0.04
Distributions:
Dividends from net investment income (0.14) (0.42) (0.19)
Distributions from net realized capital gains -- -- (0.00)#
Total dividends and distributions (0.14) (0.42) (0.19)
Net asset value, end of period $ 9.98 $ 10.03 $ 9.69
Total return++ 0.85% 7.95% 0.45%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,072 $ 1,953 $ 323
Ratio of operating expenses to average net assets 0.72%+(a) 0.70%(a) 0.59%+(a)
Ratio of net investment income to average net assets 4.05%+ 4.13% 3.58%+
Portfolio turnover rate 16% 82% 57%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.18%+ 1.18% 1.05%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12 $ 0.37 $ 0.18
</TABLE>
* Nations Short-Term Municipal Income Fund's Investor C Shares commenced
operations on May 19, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
12
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
<CAPTION>
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.17 $ 9.24 $ 9.35
Net investment income 0.14 0.43 0.03
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.11)
Net increase/(decrease) in net asset value from operations 0.00 1.36 (0.08)
Distributions:
Dividends from net investment income (0.14) (0.43) (0.03)
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.14) (0.43) (0.03)
Net asset value, end of period $ 10.03 $ 10.17 $ 9.24
Total return++ 0.03% 14.96% (0.52)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 716 $ 359 $ 2
Ratio of operating expenses to average net assets 1.00%+(a) 0.95%(a) 0.85%+(a)
Ratio of net investment income to average net assets 4.25%+ 4.41% 4.09%+
Portfolio turnover rate 4% 31% 51%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.33%+ 1.34% 1.38%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.40 $ 0.02
</TABLE>
* Nations Intermediate Municipal Bond Fund's Investor C Shares commenced
operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
13
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 11.08 $ 9.64 $ 11.33 $ 10.65
Net investment income 0.18 0.51 0.49 0.50
Net realized and unrealized gain/(loss) on
investments (0.24) 1.44 (1.44) 0.72
Net increase/(decrease) in net asset value from
operations (0.06) 1.95 (0.95) 1.22
Distributions:
Dividends from net investment income (0.18) (0.51) (0.49) (0.50)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.25) (0.04)
Total dividends and distributions (0.18) (0.51) (0.74) (0.54)
Net asset value, end of period $ 10.84 $ 11.08 $ 9.64 $ 11.33
Total return++ (0.60)% 20.65% (8.86)% 11.69%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,173 $ 2,268 $ 3,064 $ 6,331
Ratio of operating expenses to average net assets 1.16%+ 1.35% 1.36% 1.27%
Ratio of operating expenses to average net assets
including interest expense --(a) --(a) 1.37% --
Ratio of net investment income to average net
assets 4.79%+ 4.88% 4.67% 4.49%
Portfolio turnover rate 4% 49% 63% 48%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.47%+ 1.63% 1.65% 1.59%
Net investment income per share without waivers
and/or expense reimbursements $ 0.17 $ 0.48 $ 0.46 $ 0.46
<CAPTION>
YEAR
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.48
Net investment income 0.21
Net realized and unrealized gain/(loss) on
investments 0.17
Net increase/(decrease) in net asset value from
operations 0.38
Distributions:
Dividends from net investment income (0.21)
Distributions in excess of net investment income --
Distributions from net realized capital gains --
Total dividends and distributions (0.21)
Net asset value, end of period $ 10.65
Total return++ 3.63%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,744
Ratio of operating expenses to average net assets 1.21%+
Ratio of operating expenses to average net assets
including interest expense --
Ratio of net investment income to average net
assets 4.36%+
Portfolio turnover rate 19%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.61%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.19
</TABLE>
* Nations Municipal Income Fund's Investor C Shares commenced operations on
June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
14
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.63 $ 9.61 $ 10.50 $ 9.98
Net investment income 0.15 0.43 0.39 0.35
Net realized and unrealized gain/(loss) on investments (0.17) 1.02 (0.88) 0.52
Net increase/(decrease) in net asset value from
operations (0.02) 1.45 (0.49) 0.87
Distributions:
Dividends from net investment income (0.15) (0.43) (0.39) (0.35)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.43) (0.40) (0.35)
Net asset value, end of period $ 10.46 $ 10.63 $ 9.61 $ 10.50
Total return++ (0.23)% 15.34% (4.81)% 8.80%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 275 $ 277 $ 614 $ 684
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.13%(a) 1.19%+
Ratio of net investment income to average net assets 4.16% 4.20% 3.86% 3.53%+
Portfolio turnover rate 18% 27% 34% 15%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.36%+ 1.31% 1.34% 1.55%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.41 $ 0.37 $ 0.31
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund Investor C Shares commenced
operations on December 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
15
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS FLORIDA MUNICIPAL BOND FUND
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.76 $ 8.40 $ 8.47
Net investment income 0.14 0.44 0.03
Net realized and unrealized gain/(loss) on investments (0.29) 1.36 (0.07)
Net increase/(decrease) in net asset value from operations (0.15) 1.80 (0.04)
Dividends from net investment income (0.14) (0.44) (0.03)
Total dividends and distributions (0.14) (0.44) (0.03)
Net asset value, end of period $ 9.47 $ 9.76 $ 8.40
Total return++ (1.52)% 21.80% (0.43)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 38 $ 38 $ 2
Ratio of operating expenses to average net assets 1.15%+(a) 1.14%(a) 0.96%+(a)
Ratio of net investment income to average net assets 4.48%+ 4.69% 4.80%+
Portfolio turnover rate 7% 13% 46%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.51%+ 1.70% 1.66%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.39 $ 0.03
</TABLE>
* Nations Florida Municipal Bond Fund's Investor C Shares commenced operations
on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
16
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.81 $ 9.82 $ 10.82 $ 10.29
Net investment income 0.15 0.45 0.43 0.42
Net realized and unrealized gain/(loss) on
investments (0.18) 0.99 (0.98) 0.56
Net increase/(decrease) in net asset value from
operations (0.03) 1.44 (0.55) 0.98
Distributions:
Dividends from net investment income (0.15) (0.45) (0.43) (0.42)
Distributions in excess of net investment
income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.02) (0.03)
Total dividends and distributions (0.15) (0.45) (0.45) (0.45)
Net asset value, end of period $ 10.63 $ 10.81 $ 9.82 $ 10.82
Total return++ (0.29)% 14.85% (5.25)% 9.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,445 $ 2,606 $ 2,397 $ 2,990
Ratio of operating expenses to average net
assets 1.00%+ 1.05% 1.12% 1.21%
Ratio of operating expenses to average net
assets including interest expense --(a) --(a) 1.13% --
Ratio of net investment income to average net
assets 4.17%+ 4.26% 4.16% 3.82%
Portfolio turnover rate 3% 17% 22% 6%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.33%+ 1.30% 1.33% 1.52%
Net investment income per share without waivers
and/or expense reimbursements $ 0.14 $ 0.42 $ 0.41 $ 0.39
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.11
Net investment income 0.20
Net realized and unrealized gain/(loss) on
investments 0.18
Net increase/(decrease) in net asset value from
operations 0.38
Distributions:
Dividends from net investment income (0.20)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.20)
Net asset value, end of period $ 10.29
Total return++ 3.82%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 992
Ratio of operating expenses to average net
assets 0.91%+
Ratio of operating expenses to average net
assets including interest expense --
Ratio of net investment income to average net
assets 4.21%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.72%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.16
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Investor C Shares commenced
operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
17
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.72 $ 8.38 $ 8.45
Net investment income 0.14 0.44 0.03
Net realized and unrealized gain/(loss) on investments (0.24) 1.34 (0.07)
Net increase/(decrease) in net asset value from operations (0.10) 1.78 (0.04)
Dividends from net investment income (0.14) (0.44) (0.03)
Total dividends and distributions (0.14) (0.44) (0.03)
Net asset value, end of period $ 9.48 $ 9.72 $ 8.38
Total return++ (1.03)% 21.59% (0.44)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 69 $ 69 $ 2
Ratio of operating expenses to average net assets 1.16%+(a) 1.15%(a) 0.96%+(a)
Ratio of net investment income to average net assets 4.40%+ 4.67% 4.85%+
Portfolio turnover rate 7% 26% 35%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.70%+ 1.84% 1.79%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12 $ 0.37 $ 0.02
</TABLE>
* Nations Georgia Municipal Bond Fund's Investor C Shares commenced operations
on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
18
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.95 $ 10.00 $ 11.09 $ 10.72
Net investment income 0.15 0.45 0.44 0.40
Net realized and unrealized gain/(loss) on
investments (0.15) 0.98 (0.99) 0.44
Net increase/(decrease) in net asset value from
operations 0.00 1.43 (0.55) 0.84
Distributions:
Dividends from net investment income (0.15) (0.45) (0.44) (0.40)
Distributions from net realized capital gains -- (0.03) (0.10) (0.07)
Distributions in excess of net realized capital
gains -- -- (0.00)# --
Total dividends and distributions (0.15) (0.48) (0.54) (0.47)
Net asset value, end of period $ 10.80 $ 10.95 $ 10.00 $ 11.09
Total return++ (0.01)% 14.59% (5.20)% 8.30%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,900 $ 2,808 $ 2,570 $ 4,424
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.11%(a) 1.24%
Ratio of net investment income to average net
assets 4.12%+ 4.26% 4.15% 3.98%
Portfolio turnover rate 4% 11% 22% 26%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.31%+ 1.30% 1.31% 1.48%
Net investment income per share without waivers
and/or expense reimbursements $ 0.14 $ 0.42 $ 0.42 $ 0.38
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.58
Net investment income 0.19
Net realized and unrealized gain/(loss) on
investments 0.14
Net increase/(decrease) in net asset value from
operations 0.33
Distributions:
Dividends from net investment income (0.19)
Distributions from net realized capital gains --
Distributions in excess of net realized capital
gains --
Total dividends and distributions (0.19)
Net asset value, end of period $ 10.72
Total return++ 3.13%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,796
Ratio of operating expenses to average net assets 1.16%+
Ratio of net investment income to average net
assets 3.88%+
Portfolio turnover rate 38%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.44%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.18
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Investor C Shares
commenced operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
19
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS MARYLAND MUNICIPAL BOND FUND
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.63 $ 8.37 $ 8.44
Net investment income 0.13 0.41 0.03
Net realized and unrealized gain/(loss) on investments (0.24) 1.26 (0.07)
Net increase/(decrease) in net asset value from operations (0.11) 1.67 (0.04)
Dividends from net investment income (0.13) (0.41) (0.03)
Total dividends and distributions (0.13) (0.41) (0.03)
Net asset value, end of period $ 9.39 $ 9.63 $ 8.37
Total return++ (1.13)% 20.29% (0.45)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2 $ 2 $ 2
Ratio of operating expenses to average net assets 1.16%+ 1.15% 0.96%+(a)
Ratio of net investment income to average net assets 4.16%+ 4.39% 4.73%+
Portfolio turnover rate 7% 11% 39%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.79%+ 2.01% 2.05%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.11 $ 0.33 $ 0.02
</TABLE>
* Nations Maryland Municipal Bond Fund's Investor C Shares commenced operations
on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
20
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
Operating performance:
Net asset value, beginning of period $ 10.51 $ 9.53 $ 10.46 $ 9.99
Net investment income 0.14 0.40 0.38 0.35
Net realized and unrealized gain/(loss) on investments (0.15) 0.99 (0.88) 0.47
Net increase/(decrease) in net asset value from operations (0.01) 1.39 (0.50) 0.82
Distributions:
Dividends from net investment income (0.14) (0.40) (0.38) (0.35)
Distributions in excess of net investment income -- (0.00)# -- --
Distributions from net realized capital gains -- (0.01) (0.05) --
Total dividends and distributions (0.14) (0.41) (0.43) (0.35)
Net asset value, end of period $ 10.36 $ 10.51 $ 9.53 $ 10.46
Total return++ (0.12)% 14.84% (4.89)% 8.26%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,379 $ 1,366 $ 1,486 $ 1,592
Ratio of operating expenses to average net assets 1.00%+ 1.07%(a) 1.13%(a) 1.17%+
Ratio of net investment income to average net assets 3.97%+ 3.97% 3.80% 3.48%+
Portfolio turnover rate 3% 57% 37% 29%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.37%+ 1.34% 1.40% 1.60%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.38 $ 0.36 $ 0.30
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Investor C Shares
commenced operations on December 16, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
21
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.73 $ 8.36 $ 8.45
Net investment income 0.14 0.43 0.03
Net realized and unrealized gain/(loss) on investments (0.24) 1.37 (0.09)
Net increase/(decrease) in net asset value from operations (0.10) 1.80 (0.06)
Dividends from net investment income (0.14) (0.43) (0.03)
Total dividends and distributions (0.14) (0.43) (0.03)
Net asset value, end of period $ 9.49 $ 9.73 $ 8.36
Total return++ (1.04)% 21.93% (0.67)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 17 $ 2 $ 2
Ratio of operating expenses to average net assets 1.14%+ 1.13%(a) 0.96%+(a)
Ratio of net investment income to average net assets 4.32%+ 4.68% 4.78%+
Portfolio turnover rate 22% 40% 29%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.53%+ 1.71% 1.67%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.38 $ 0.03
</TABLE>
* Nations North Carolina Municipal Bond Fund's Investor C Shares commenced
operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
22
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.69 $ 9.76 $ 10.61 $ 10.18
Net investment income 0.15 0.46 0.44 0.42
Net realized and unrealized gain/(loss) on
investments (0.17) 0.93 (0.84) 0.43
Net increase/(decrease) in net asset value from
operations (0.02) 1.39 (0.40) 0.85
Distributions:
Dividends from net investment income (0.15) (0.46) (0.44) (0.42)
Distributions in excess of net investment
income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.46) (0.45) (0.42)
Net asset value, end of period $ 10.52 $ 10.69 $ 9.76 $ 10.61
Total return++ (0.17)% 14.45% (3.94)% 8.51%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 5,409 $ 5,527 $ 6,167 $ 8,499
Ratio of operating expenses to average net
assets 1.00%+(a) 1.05%(a) 1.12%(a) 1.20%
Ratio of net investment income to average net
assets 4.31%+ 4.42% 4.24% 3.93%
Portfolio turnover rate 6% 11% 30% 11%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.32%+ 1.25% 1.33% 1.50%
Net investment income per share without waivers
and/or expense reimbursements $ 0.14 $ 0.44 $ 0.42 $ 0.39
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.05
Net investment income 0.20
Net realized and unrealized gain/(loss) on
investments 0.13
Net increase/(decrease) in net asset value from
operations 0.33
Distributions:
Dividends from net investment income (0.20)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.20)
Net asset value, end of period $ 10.18
Total return++ 3.27%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,436
Ratio of operating expenses to average net
assets 0.88%+
Ratio of net investment income to average net
assets 4.10%+
Portfolio turnover rate 7%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.48%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.17
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Investor C Shares
commenced operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charge.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30
23
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.99 $ 8.65 $ 8.73
Net investment income 0.15 0.45 0.03
Net realized and unrealized gain/(loss) on investments (0.22) 1.34 (0.08)
Net increase/(decrease) in net asset value from operations (0.07) 1.79 (0.05)
Dividends from net investment income (0.15) (0.45) (0.03)
Total dividends and distributions (0.15) (0.45) (0.03)
Net asset value, end of period $ 9.77 $ 9.99 $ 8.65
Total return++ (0.76)% 21.01% (0.52)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 264 $ 20 $ 2
Ratio of operating expenses to average net assets 1.17%+(a) 1.15%(a) 0.96%+(a)
Ratio of net investment income to average net assets 4.39%+ 4.69% 4.73%+
Portfolio turnover rate 20% 13% 14%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.70%+ 1.83% 1.87%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.39 $ 0.03
</TABLE>
* Nations South Carolina Municipal Bond Fund's Investor C Shares commenced
operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
24
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.23 $ 9.30 $ 9.38
Net investment income 0.14 0.41 0.03
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.08)
Net increase/(decrease) in net asset value from operations 0.00 1.34 (0.05)
Distributions:
Dividends from net investment income (0.14) (0.41) (0.03)
Distributions in excess of net investment income -- -- --
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.14) (0.41) (0.03)
Net asset value, end of period $ 10.09 $ 10.23 $ 9.30
Total return++ (0.02)% 14.62% (0.53)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2 $ 2 $ 2
Ratio of operating expenses to average net assets 1.00%+ 1.07% 1.02%+
Ratio of operating expenses to average net assets including interest
expense -- --(a) 1.03%+
Ratio of net investment income to average net assets 4.01%+ 4.15% 4.06%+
Portfolio turnover rate 3% 34% 41%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.52%+ 1.42% 1.39%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12 $ 0.38 $ 0.02
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund's Investor C Shares
commenced operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
25
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.87 $ 8.58 $ 8.62
Net investment income 0.14 0.45 0.03
Net realized and unrealized gain/(loss) on investments (0.19) 1.29 (0.04)
Net increase/(decrease) in net asset value resulting from operations (0.05) 1.74 (0.01)
Dividends from net investment income (0.14) (0.45) (0.03)
Total dividends and distributions (0.14) (0.45) (0.03)
Net asset value, end of period $ 9.68 $ 9.87 $ 8.58
Total return++ (0.49)% 20.62% (0.07)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 37 $ 64 $ 2
Ratio of operating expenses to average net assets 1.18%+ 1.15%(a) 0.96%+(a)
Ratio of operating expenses to average net assets including interest
expense 1.18%+ -- --
Ratio of net investment income to average net assets 4.34%+ 4.74% 4.81%+
Portfolio turnover rate 2% 45% 38%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 2.05%+ 2.02% 1.95%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.11 $ 0.37 $ 0.02
</TABLE>
* Nations Tennessee Municipal Bond Fund's Investor C Shares commenced
operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
26
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 10.36 $ 9.53 $ 9.55
Net investment income 0.14 0.41 0.03
Net realized and unrealized gain/(loss) on investments (0.15) 0.83 (0.02)
Net increase/(decrease) in net asset value from operations (0.01) 1.24 0.01
Distributions:
Dividends from net investment income (0.14) (0.41) (0.03)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- --
Total dividends and distributions (0.14) (0.41) (0.03)
Net asset value, end of period $ 10.21 $ 10.36 $ 9.53
Total return++ (0.12)% 13.27% 0.08%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 569 $ 570 $ 2
Ratio of operating expenses to average net assets 1.00%+ 1.07%(a) 1.05%+(a)
Ratio of net investment income to average net assets 4.02%+ 4.12% 3.90%+
Portfolio turnover rate 11% 64% 61%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.39%+ 1.33% 1.28%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.39 $ 0.02
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund's Investor C Shares commenced
operations on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
27
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.70 $ 8.39 $ 8.46
Net investment income 0.14 0.43 0.03
Net realized and unrealized gain/(loss) on investments (0.21) 1.31 (0.07)
Net increase/(decrease) in net asset value from operations (0.07) 1.74 (0.04)
Dividends from net investment income (0.14) (0.43) (0.03)
Total dividends and distributions (0.14) (0.43) (0.03)
Net asset value, end of period $ 9.49 $ 9.70 $ 8.39
Total return++ (0.74)% 21.15% (0.43)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 70 $ 70 $ 2
Ratio of operating expenses to average net assets 1.16%+ 1.14%(a) 0.97%+(a)
Ratio of net investment income to average net assets 4.36%+ 4.70% 4.77%+
Portfolio turnover rate 6% 50% 107%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.67%+ 1.80% 1.81%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12 $ 0.37 $ 0.02
</TABLE>
* Nations Texas Municipal Bond Fund's Investor C Shares commenced operations on
November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
28
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93
Operating performance:
Net asset value, beginning of period $ 10.83 $ 9.94 $ 10.99 $ 10.59
Net investment income 0.15 0.46 0.44 0.44
Net realized and unrealized gain/(loss) on
investments (0.14) 0.89 (0.96) 0.42
Net increase/(decrease) in net asset value from
operations 0.01 1.35 (0.52) 0.86
Distributions:
Dividends from net investment income (0.15) (0.46) (0.44) (0.44)
Distributions from net realized capital gains -- (0.00)# (0.09) (0.02)
Distributions in excess of net realized capital
gains -- -- (0.00)# --
Total dividends and distributions (0.15) (0.46) (0.53) (0.46)
Net asset value, end of period $ 10.69 $ 10.83 $ 9.94 $ 10.99
Total return++ 0.10% 13.82% (4.90)% 8.25%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,909 $ 7,152 $ 8,372 $ 11,176
Ratio of operating expenses to average net
assets 1.00%+(a) 1.06%(a) 1.19%(a) 1.32%
Ratio of net investment income to average net
assets 4.22%+ 4.37% 4.18% 4.05%
Portfolio turnover rate 2% 22% 14% 26%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.26%+ 1.24% 1.31% 1.44%
Net investment income per share without waivers
and/or expense reimbursements $ 0.14 $ 0.44 $ 0.43 $ 0.43
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.44
Net investment income 0.19
Net realized and unrealized gain/(loss) on
investments 0.15
Net increase/(decrease) in net asset value from
operations 0.34
Distributions:
Dividends from net investment income (0.19)
Distributions from net realized capital gains --
Distributions in excess of net realized capital
gains --
Total dividends and distributions (0.19)
Net asset value, end of period $ 10.59
Total return++ 3.36%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,769
Ratio of operating expenses to average net
assets 1.28%+
Ratio of net investment income to average net
assets 3.99%+
Portfolio turnover rate 13%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 2.80%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.12
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Investor C Shares
commenced operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
29
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94*
Operating performance:
Net asset value, beginning of period $ 9.62 $ 8.29 $ 8.38
Net investment income 0.14 0.44 0.03
Net realized and unrealized gain/(loss) on investments (0.24) 1.33 (0.09)
Net increase/(decrease) in net asset value from operations (0.10) 1.77 (0.06)
Dividends from net investment income (0.14) (0.44) (0.03)
Total dividends and distributions (0.14) (0.44) (0.03)
Net asset value, end of period $ 9.38 $ 9.62 $ 8.29
Total return++ (1.03)% 21.71% (0.67)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 43 $ 34 $ 2
Ratio of operating expenses to average net assets 1.16%+ 1.14%(a) 0.96%+(a)
Ratio of operating expenses to net assets including interest expense 1.17%+ -- --
Ratio of net investment income to average net assets 4.50%+ 4.76% 4.77%+
Portfolio turnover rate 8% 16% 61%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 1.63%+ 1.79% 1.74%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.12 $ 0.39 $ 0.03
</TABLE>
* Nations Virginia Municipal Bond Fund Investor C Shares commenced operations
on November 3, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year ended changed to March 31. Prior to this, the fiscal year end
was November 30.
Objectives
NATIONS MUNICIPAL INCOME FUND: The investment objective of Nations Municipal
Income Fund is to seek current income exempt from Federal income tax, consistent
with prudent investment risk.
NATIONS SHORT-TERM MUNICIPAL INCOME FUND: The investment objective of Nations
Short-Term Municipal Income Fund is to seek current income exempt from Federal
income tax consistent with minimal fluctuation of principal.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Nations Intermediate Municipal Bond
Fund's investment objective is to seek current income exempt from Federal income
tax consistent with moderate fluctuation of principal.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal income tax and the Florida state intangibles tax consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS FLORIDA MUNICIPAL BOND FUND: Nations Florida Municipal Bond Fund's
investment objective is to seek current income exempt
30
<PAGE>
from Federal income tax and the Florida state intangibles tax, consistent with
prudent investment risk, by investing primarily in long-term, investment grade
municipal securities.
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Georgia Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Georgia state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
NATIONS GEORGIA MUNICIPAL BOND FUND: Nations Georgia Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Georgia
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Maryland state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
NATIONS MARYLAND MUNICIPAL BOND FUND: Nations Maryland Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Maryland
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND: Nations North Carolina Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
and North Carolina state income taxes, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND: Nations South Carolina Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
and South Carolina state income taxes, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade municipal securities.
NATIONS TENNESSEE MUNICIPAL BOND FUND: Nations Tennessee Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax
and the Tennessee Hall Income Tax on unearned income consistent with prudent
investment risk by investing primarily in long-term, investment grade municipal
securities.
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal income tax consistent with moderate fluctuation of principal by
investing primarily in intermediate-term, investment grade municipal securities.
NATIONS TEXAS MUNICIPAL BOND FUND: Nations Texas Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax,
consistent with prudent investment risk, by investing primarily in
31
<PAGE>
long-term, investment grade municipal securities.
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Virginia state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
NATIONS VIRGINIA MUNICIPAL BOND FUND: Nations Virginia Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Virginia
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund and Nations Virginia
Intermediate Municipal Bond Fund are sometimes collectively referred to as the
"State Intermediate Municipal Bond Funds," and Nations Florida Municipal Bond
Fund, Nations Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations North Carolina Municipal Bond Fund, Nations South Carolina Municipal
Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas Municipal Bond
Fund and Nations Virginia Municipal Bond Fund are sometimes collectively
referred to as the "State Municipal Bond Funds."
How Objectives Are Pursued
NATIONS SHORT-TERM MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND
FUND AND NATIONS MUNICIPAL INCOME FUND: In pursuing their objectives, the Funds
will invest at least 80% of the total value of their assets in investment grade
obligations issued by or on behalf of states, territories, and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities, and authorities, the interest on which, in the
opinion of counsel to the issuer or bond counsel, is exempt from Federal income
tax ("Municipal Securities"). To the extent consistent with the Funds'
investment approach described in this Prospectus, the Funds are managed to seek
capital appreciation and minimize capital losses due to interest rate movements.
Under normal market conditions, the average weighted maturity and duration of
each of the Funds' portfolios are expected to be as follows: Nations Municipal
Income Fund -- average weighted maturity greater than 10 years and duration
between 7.5 and 9.5 years; Nations Intermediate Municipal Bond Fund -- average
weighted maturity between three and 10 years and duration between five and six
years; Nations Short-Term Municipal Income Fund -- average weighted maturity
less than three years and duration between 1.25 and 2.75 years.
Municipal Securities will be rated investment grade at the time of purchase by
at least one of the following nationally recognized statistical rating
organizations: Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors
Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc. (collectively
"IBCA"), or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs") or,
if unrated, determined by the Adviser to be of comparable quality at the time of
purchase to rated obligations that may be acquired by a Fund. Obligations rated
in the lowest of the top four investment grade rating categories (E.G. rated
"BBB" by S&P or "Baa" by Moody's) have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make
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principal and interest payments than is the case with higher grade debt
obligations. 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 a Fund. The Adviser will consider such an event
in determining whether a Fund should continue to hold the obligation. See
"Appendix B" for a description of these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by a Fund include repurchase agreements and short-term debt
securities. Under normal market conditions, each Fund's investments in taxable
obligations and private activity bonds, the interest on which may be treated as
a specific tax preference item under the Federal alternative minimum tax, will
not exceed 20% of its total assets at the time of purchase. The Funds may hold
uninvested cash reserves pending investment or during defensive periods.
STATE INTERMEDIATE MUNICIPAL BOND FUNDS AND STATE MUNICIPAL BOND FUNDS: Under
normal market conditions, at least 80% of the total value of the assets of the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
be invested in Municipal Securities, and substantially all of each Fund's assets
will be invested in debt instruments, issued by or on behalf of the pertinent
state and its political subdivisions, agencies, instrumentalities and
authorities. Under normal market conditions, the average weighted maturity and
duration of each of the State Intermediate Municipal Bond Funds and State
Municipal Bond Funds are expected to be as follows: State Intermediate Municipal
Bond Funds -- average weighted maturity between three and 10 years and duration
between five and six years; State Municipal Bond Funds -- average weighted
maturity greater than 10 years and duration greater than 10 years.
Each of the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds operates as a non-diversified fund (except to the extent diversification
is required for Federal income tax purposes).
Dividends paid by each of these Funds which are derived from interest
attributable to tax-exempt obligations of the pertinent state and that state's
political subdivisions, agencies, instrumentalities and authorities, as well as
certain other governmental issuers such as Puerto Rico, will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state. Texas and Florida do not impose a state
income tax; however, Florida imposes a state intangibles tax. Dividends derived
from interest on obligations of other governmental issuers will be exempt from
regular Federal income tax, but generally will be subject to state income tax
(with the exception of Texas and Florida). (See "How Dividends And Distributions
Are Made; Tax Information.") During normal market conditions and as a matter of
fundamental investment policy, each of these Funds will invest at least 80% of
its total assets in obligations the interest on which will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state.
Municipal Securities acquired by the Funds will be rated investment grade at the
time of purchase by at least one NRSRO or, if unrated, determined by the Adviser
to be of comparable quality at the time of purchase to rated obligations that
may be acquired by the Funds. Obligations rated in the lowest of the top four
investment grade rating categories (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
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 a Fund. The Adviser will consider such an event in determining
whether a Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
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During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by the Funds include repurchase agreements and short-term
debt securities. Under normal market conditions, each Fund's investments in
taxable obligations and private activity bonds, the interest on which may be
treated as a specific tax preference item under the Federal alternative minimum
tax, will not exceed 20% of its total assets at the time of purchase.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: interest rate swaps, caps and floors for hedging purposes;
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S. and
foreign exchange-traded financial futures and options thereon approved by the
Commodity Futures Trading Commission ("CFTC") for market exposure
risk-management. Each Fund also may lend its portfolio securities to qualified
institutional investors and may invest in restricted, private placement and
other illiquid securities. Additionally, each Fund may purchase securities
issued by other investment companies, consistent with the Fund's investment
objective and policies. The Funds may invest in instruments issued by trusts or
partnerships, including pass-through certificates representing participations
in, or debt instruments backed by, the securities and other assets owned by such
trusts or partnerships. Certain government securities that have variable or
floating interest rates or demand, put or prepayment features or paydown
schedules may be deemed to have remaining maturities shorter than their nominal
maturities for purposes of determining the average weighted maturity and
duration of the Funds.
For more information concerning these and other investments in which the Funds
may invest and the Funds' investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the 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 Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
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. Since each of the State
Intermediate Municipal Bond Funds and State Municipal Bond Funds invests
primarily in securities issued by entities located in a single state, such Funds
are more susceptible to changes in value due to political or economic changes
affecting that state or its subdivisions.
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 Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the 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 -- Portfolio Securities."
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INVESTMENT LIMITATIONS: Each Fund 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 a Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund 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.
Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond
Fund and Nations Municipal Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's
total assets would be invested in the securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to these limitations and with respect to 75% of such Fund's
assets, such Fund will not hold more than 10% of the voting securities of
any issuer.
The State Intermediate Municipal Bond Funds and the State Municipal Bond Funds
may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of a Fund's
total assets would be invested in the securities of one issuer, and with
respect to 50% of such Fund's total assets, more than 5% of its assets
would be invested in the securities of one issuer.
As a matter of fundamental policy, except during defensive periods, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds will invest
at least 80% of their respective total net assets in Municipal Securities the
interest on which is exempt from Federal income tax and the pertinent state's
income taxes (with the exception of Texas and Florida). Similarly, as a matter
of fundamental policy, except during defensive periods, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund and Nations
Municipal Income Fund will invest at least 80% of their respective total net
assets in Municipal Securities the interest on which is exempt from Federal
income tax. For purposes of these fundamental policies, private activity bonds
are included in the term "Municipal Securities" only if the interest paid
thereon is exempt from Federal income tax and not treated as a specific tax
preference item under the Federal alternative minimum tax.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current positions
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
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How Performance Is Shown
From time to time a Fund may advertise the total return, yield and
tax-equivalent yield on a class of shares. TOTAL RETURN, YIELD AND TAX-
EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "total return" of a class of shares of a Fund
may be calculated on an average annual total return basis or an aggregate total
return basis. Average annual total return refers to the average annual
compounded rates of return on a class of shares over one-, five-, and ten-year
periods or the life of a Fund (as stated in the advertisement) that would equate
an initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gains distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
The "tax-equivalent yield" of a class of shares of a Fund also may be quoted
from time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to the particular class's tax-free yield. This is done by
increasing such class's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with a Fund's investment objective and policies. These factors should
be considered when comparing a Fund's investment results to those of other
mutual funds and other investment vehicles. Since yields fluctuate, yield data
cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A and Investor N Shares. Each Class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such charges were reflected. Any fees charged by a selling
agent and/or servicing agent directly to its customers' accounts in connection
with investments in the Funds will not be included in calculations of total
return or yield. The Funds' annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Trustees. The SAI contains the names of and general background
information concerning the Trustees of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially
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comply in all material respects with the recommendations set forth in the May 9,
1994 Report of the Advisory Group on Personal Investing of the Investment
Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of the Trustees of Nations Fund Trust, and in
accordance with each Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for each Fund, makes decisions with
respect to and places orders for each Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Funds, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with their investment objectives, policies and restrictions, the Funds may
invest in securities of companies with which NationsBank has a lending
relationship. For the services provided and expenses assumed pursuant to an
Investment Advisory Agreement, NBAI is entitled to receive advisory fees,
computed daily and paid monthly, at the annual rates of: 0.50% of the average
daily net assets of each of Nations Short-Term Municipal Income Fund, Nations
Intermediate Municipal Bond Fund and the State Intermediate Municipal Bond
Funds; and 0.60% of the average daily net assets of each of Nations Municipal
Income Fund and the State Municipal Bond Funds.
For the services provided and the expenses assumed pursuant to a sub-advisory
agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of 0.07% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Municipal Income Fund -- 0.30%; Nations Short-Term Municipal
Income Fund -- 0.06%; Nations Intermediate Municipal Bond Fund -- 0.17%; Nations
Florida Intermediate Municipal Bond Fund -- 0.14%; Nations Florida Municipal
Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal Bond Fund -- 0.17%;
Nations Georgia Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate
Municipal Bond Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0%;
Nations North Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North
Carolina Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate
Municipal Bond Fund -- 0.18%; Nations South Carolina Municipal Bond
Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond Fund -- 0%; Nations
Tennessee Municipal Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond
Fund -- 0.11%; Nations Texas Municipal Bond Fund -- 0.12%; Nations Virginia
Intermediate Municipal Bond Fund -- 0.24%; and Nations Virginia Municipal Bond
Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indi-
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cated rates of the following Funds' average daily net assets: Nations Municipal
Income Fund -- 0.30%; Nations Short-Term Municipal Income Fund -- 0.06%; Nations
Intermediate Municipal Bond Fund -- 0.17%; Nations Florida Intermediate
Municipal Bond Fund -- 0.14%; Nations Florida Municipal Bond Fund -- 0.26%;
Nations Georgia Intermediate Municipal Bond Fund -- 0.17%; Nations Georgia
Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate Municipal Bond
Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0%; Nations North
Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North Carolina
Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate Municipal Bond
Fund -- 0.18%; Nations South Carolina Municipal Bond Fund -- 0.10%; Nations
Tennessee Intermediate Municipal Bond Fund -- 0%; Nations Tennessee Municipal
Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond Fund -- 0.11%;
Nations Texas Municipal Bond Fund -- 0.12%; Nations Virginia Intermediate
Municipal Bond Fund -- 0.24%; and Nations Virginia Municipal Bond Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Municipal Income Fund -- 0.07%; Nations Short-Term Municipal Income
Fund -- 0.07%; Nations Intermediate Municipal Bond Fund -- 0.07%; Nations
Florida Intermediate Municipal Bond Fund -- 0.07%; Nations Florida Municipal
Bond Fund -- 0.07%; Nations Georgia Intermediate Municipal Bond Fund -- 0.07%;
Nations Georgia Municipal Bond Fund -- 0.07%; Nations Maryland Intermediate
Municipal Bond Fund -- 0.07%; Nations Maryland Municipal Bond Fund -- 0.07%;
Nations North Carolina Intermediate Municipal Bond Fund -- 0.07%; Nations North
Carolina Municipal Bond Fund -- 0.07%; Nations South Carolina Intermediate
Municipal Bond Fund -- 0.07%; Nations South Carolina Municipal Bond
Fund -- 0.07%; Nations Tennessee Intermediate Municipal Bond Fund -- 0.07%;
Nations Tennessee Municipal Bond Fund -- 0.07%; Nations Texas Intermediate
Municipal Bond Fund -- 0.07%; Nations Texas Municipal Bond Fund -- 0.07%;
Nations Virginia Intermediate Municipal Bond Fund -- 0.07%; and Nations Virginia
Municipal Bond Fund -- 0.7%.
Michele M. Poirier is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and Senior Portfolio Manager for Nations Municipal
Income Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond
Fund and Nations South Carolina Municipal Bond Fund. Ms. Poirier has been the
Portfolio Manager for Nations Municipal Income Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond
Fund, and South Carolina Intermediate Municipal Bond Fund since 1992. She has
been Portfolio Manager for the other Funds since 1993. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. She has worked in
the investment community since 1974. Her past experience includes serving as
Director of Trading, Institutional Sales, and Municipal Trader for Financial
Service Corporation, Bankers Trust Company and The Robinson-Humphrey Company
respectively. Ms. Poirier received a B.B.A. in Marketing from Georgia State
University.
Mathew M. Kiselak is a Product Manager, Municipal Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Short-Term Municipal Income Fund,
Nations North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations
Tennessee Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund
and Nations Texas Municipal Bond Fund. Mr. Kiselak has been the Portfolio
Manager for Nations North Carolina Intermediate Municipal Bond Fund and Nations
North Carolina Municipal Bond Fund since 1995. He has been Portfolio Manager for
the other Funds since 1994. Prior to assuming his position with
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TradeStreet, he was Vice President and Portfolio Manager for the Investment
Management Group at NationsBank. He has worked in the investment community since
1987. His past experience includes Portfolio Manager and Municipal Credit
Analysis for Reich & Tang Inc. Mr. Kiselak received a B.A. in Economics from
Pace University.
John C. Kohl is a Director of Municipal Fixed Income Management for TradeStreet
and Managing Director of the Municipal Product Management Group. He is
responsible for overseeing all municipal product management and is the Senior
Portfolio Manager for Nations Intermediate Municipal Bond Fund, Nations Maryland
Intermediate Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations
Virginia Intermediate Municipal Bond Fund and Nations Virginia Municipal Bond
Fund. Mr. Kohl has been the Portfolio Manager for the Funds since 1994. Prior to
assuming his position with TradeStreet, he was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Kohl
has worked in the investment community since 1979. His past experience includes
serving as Chief Investment Officer for London Pacific Life & Annuity, Team
Leader and Portfolio Manager for Harris Trust and Savings Bank, and Management
Consultant for asset-liability of Continental Bank. Mr. Kohl received a joint
B.A. in Economics and North American Studies from McGill University.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such 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 such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Funds, including
performing calculations necessary to determine net asset values and dividends,
preparing tax returns and financial statements and maintaining the portfolio
records and certain general accounting records for the Funds. For the services
rendered pursuant to the Administration and Co-Administration Agreements,
Stephens and First Data are entitled to receive a combined fee at the annual
rate of up to 0.10% of each Fund's average daily net assets. For the fiscal
period from December 1, 1995 to March 31, 1996, after waivers, Nations Fund
Trust paid its administrators combined fees at the rate of 0.10% of each Fund's
average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists
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Stephens in supervising, coordinating and monitoring various aspects of the
Funds' administrative operations. For providing such services, NationsBank shall
be entitled to receive a monthly fee from Stephens based on an annual rate of
.01% of the Funds' average daily net assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/ dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor C Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the assets
of each Fund. The Custodian is located at 1401 Elm Street, Dallas, Texas 75202
and is a wholly owned subsidiary of NationsBank Corporation. In return for
providing custodial services, the Custodian is entitled to receive, in addition
to out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1%
of the average daily net assets of each Fund, (ii) $10.00 per repurchase
collateral transaction by the Funds, and (iii) $15.00 per purchase, sale and
maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. Each Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' fees and federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor C Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bear to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
Nations Fund Trust was organized as a Massachusetts business trust on May 6,
1985. Nations Fund Trust's fiscal year end is March 31; prior to 1996, Nations
Fund Trust's fiscal year end was November 30. The Funds currently offer five
classes of shares -- Primary A Shares, Primary B Shares, Investor A Shares,
Investor C Shares and Investor N
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Shares. This Prospectus relates only to the Investor C Shares of Nations
Municipal Income Fund, Nations Short-Term Municipal Income Fund, Nations
Intermediate Municipal Bond Fund, Nations Florida Intermediate Municipal Bond
Fund, Nations Florida Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Georgia Municipal Bond Fund, Nations Maryland
Intermediate Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund,
Nations South Carolina Municipal Bond Fund, Nations Tennessee Intermediate
Municipal Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Texas Municipal Bond Fund, Nations
Virginia Intermediate Municipal Bond Fund and Nations Virginia Municipal Bond
Fund. To obtain additional information regarding the Funds' other classes of
shares which may be available to you, contact your Selling Agent (as defined
below) or Nations Fund at 1-800-321-7854
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class of shares. See the SAI for examples of instances where
the Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a Sales Support Agreement with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000. The minimum subsequent
investment is $100,
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except for investments pursuant to the Systematic Investment Plan described
below.
Investor C Shares may be purchased at net asset value per share. Purchases may
be effected on days on which the New York Stock Exchange (the "Exchange") is
open for business (a "Business Day").
With respect to Investor C Shares, the Selling Agents have entered into Sales
Support Agreements with Stephens whereby they will provide various sales support
services to their customers ("Customers") who own Investor C Shares. In
addition, banks, broker/dealers or other financial institutions (including
certain affiliates of NationsBank) that have entered into Servicing Agreements
with Nations Fund ("Servicing Agents") will provide various shareholder services
for their Customers who own Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Funds and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, shareholders may direct cash to be transferred
automatically from their checking or savings account at any bank to their Fund
account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How to Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
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How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of each Fund that are redeemed within one year of the date of purchase may be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC (except Nations Short-Term
Municipal Income Fund). No CDSC is imposed on increases in net asset value above
the initial purchase price, including shares acquired by reinvestment of
distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor C Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code") of a shareholder (including a registered joint owner), (ii)
effected pursuant to Nations Fund's right to liquidate a shareholder's account,
including instances where the aggregate net asset value of the Investor C Shares
held in the account is less than the minimum account size, and (iii) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor C Shares in the
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account. Shareholders are responsible for providing evidence sufficient to
establish that they are eligible for any waiver of the CDSC. Nations Fund may
terminate any waiver of the CDSC by providing notice in the Prospectus, but any
such termination would affect only shares purchased after such termination.
Within 120 days after a redemption of Investor C Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor C Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by an existing shareholder of the Funds if the value of the Investor
C Shares in his/her accounts within the Nations Fund Family (valued at the net
asset value at the time of the establishment of the AWP) equals $10,000 or more.
Investor C Shares redeemed under the AWP will not be subject to a CDSC, provided
that the shares so redeemed do not exceed, on an annual basis, 12% of the net
asset value of the Investor C Shares in the accounts. Otherwise, any applicable
CDSC will be imposed on shares redeemed under the AWP. Shareholders who elect to
establish an AWP may receive a monthly, quarterly or annual check or automatic
transfer to a checking or savings account in a stated amount of not less than
$25 on or about the 10th or 25th day of the applicable month of withdrawal.
Investor C Shares will be redeemed (net of any applicable CDSC) as necessary to
meet withdrawal payments. Withdrawals will reduce principal and may eventually
deplete the shareholder's account. If a shareholder desires to establish an AWP
after opening an account, a signature guarantee will be required. AWPs may be
terminated by shareholders on 30 days' written notice to their Agent or by
Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquires Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market fund through an
exchange, the CDSC applicable to the original shares purchased will be applied
to any redemption of the acquired shares (except for exchanges of Nations
Short-Term Municipal Income Fund shares purchased prior to January 1, 1996,
which will be subject to the CDSC schedule applicable to the acquired Fund).
Additionally, when an investor exchanges Investor C Shares of a Nations Fund
non-money market fund for shares of the same class of another non-money market
fund or Investor D Shares of any money market fund of Nations Fund, the
remaining period of time (if any) that the CDSC is in effect will be computed
from the time of the initial purchase of the previously held Investor C Shares
(except for shares of Nations Short-Term
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Municipal Income Fund purchased prior to January 1, 1996). If an investor
exchanges Investor C Shares of the Nations Short-Term Municipal Income Fund
purchased prior to January 1, 1996 for shares of the same class of another non-
money market fund, the remaining period of time that the CDSC applicable to the
acquired shares is in effect will be computed from the time of the exchange.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF"),
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one Nations Fund
to another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th or 30th day of the applicable month.
The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, an
investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchanges through the AEF). Nations Fund reserves the right to
reject any exchange request. Only shares that may legally be sold in the state
of the investor's residence may be acquired in an exchange. Only shares of a
class that is accepting investments generally may be acquired in an exchange. An
investor may telephone an exchange request by calling his/her Agent which is
responsible for transmitting such request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have approved a
Distribution Plan with respect to Investor C Shares of the Funds. Pursuant to
the Distribution Plan, each Fund may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor C Shares. Payments under the Distribution Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Trustees,
provided that the annual rate may not exceed 0.75% of the
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average daily net asset value of each Fund's Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as 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 Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution 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 Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAI for more details on the
Distribution Plan.
The Trustees also have approved a shareholder servicing plan (the "Investor C
Servicing Plan") for each Fund which permits the Fund to compensate Servicing
Agents for services provided to their Customers that own Investor C Shares.
Payments under the Investor C Servicing Plan are calculated daily and paid
monthly at a rate or rates set from time to time by each Fund, provided that the
annual rate may not exceed 0.25% of the average daily net asset value of the
Fund's Investor C Shares.
The fees payable under the Investor C Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for Investor C Shares from Customers and
transmitting net purchase and redemption orders to Stephens or the Transfer
Agent; (ii) providing Customers with a service that invests the assets of their
accounts in Investor C Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor C Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Investor C Servicing Plan
at any time, and payments are subject to the continuation of the Investor C
Servicing Plan described above and the terms of the Servicing Agreements. See
the SAI for more details on the Investor C Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of the Funds' Investor Shares in connection with a Customer's
account. These fees would be in addition to any amounts received by a Selling
Agent under its Sales Support Agreement with Stephens or by a Servicing Agent
under its Servicing Agreement with Nations Fund. The Sales Support Agreements
and Servicing Agreements require Agents to disclose to their Customers any
compensation payable to the Agent by Stephens or Nations Fund and any other
compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of a Fund during a specified period of time. Stephens also may, from time to
time, pay additional consideration to dealers not to exceed 0.75% of the
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offering price per share on all sales of Investor C Shares as an expense of
Stephens or for which Stephens may be reimbursed under the Distribution Plan or
upon receipt of a CDSC. Any such additional consideration or incentive program
may be terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. Each Fund's net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Selling or Servicing Agents may provide for
the reinvestment of dividends in the form of additional Investor C Shares of the
same class of the same Fund. Dividends and distributions are paid in cash within
five Business Days of the end of the month or quarter to which the dividend
relates. Dividends and distributions payable to a shareholder are paid in cash
within five Business Days after a shareholder's complete redemption of his/her
Investor Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
As regulated investment companies, the Funds are permitted to pass through to
their shareholders tax-exempt income ("exempt-interest dividends") subject to
certain requirements which the Funds intend to satisfy. Distributions from
taxable income will be taxable as ordinary income to shareholders whether such
income is received in cash or reinvested in additional
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shares. The policy of the Funds is to pay to their shareholders an amount equal
to at least 90% of their exempt-interest income and their investment company
taxable income. Exempt-interest dividends may be treated by shareholders as
items of interest excludable from their Federal gross income under Section
103(a) of the Code unless under the circumstances applicable to the particular
shareholder the exclusion would be disallowed. (See the SAI under "Additional
Information Concerning Taxes.") Distributions from the Funds will not qualify
for the dividends-received deduction for corporate shareholders. Distributions
of net investment income by Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund and Nations Intermediate Municipal Bond Fund may be
taxable to investors even though a substantial portion of such distributions may
be derived from interest on tax-exempt obligations which, if realized directly,
would be exempt from such income taxes.
Substantially all of a Fund's net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders as long-term capital gains, regardless of how long the shareholders
have held the Fund's shares and whether such gains are received in cash or
reinvested in additional shares.
Each year, shareholders will be notified as to the amount and federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes, as discussed more
fully below and in the SAI.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
If any of the Funds should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
With respect to the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds, it is anticipated that exempt-interest dividends derived
from tax-exempt interest paid on municipal obligations of the pertinent state
and that state's political subdivisions, agencies, instrumentalities, and
authorities, and certain other issuers, including Puerto Rico and Guam,
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will be exempt from state income tax with respect to those states which impose a
state income tax. Florida and Texas do not impose income taxes, but Florida
imposes a tax upon intangible personal property which may apply to shares of
Nations Florida Intermediate Municipal Bond Fund and Nations Florida Municipal
Bond Fund held by residents of that state. Florida has issued a Technical
Assistance Advisement indicating that shares of such Funds will not be subject
to Florida's intangibles tax, subject to certain requirements which the Funds
intend to satisfy. See the SAI for further details about state tax treatment
relevant to shareholders of the Funds.
In addition to annual disclosures as to Federal tax consequences of dividends
and distributions, shareholders of the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds will also be advised as to the state tax
consequences of dividends and distributions made each year.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning.
Accordingly, potential investors should consult their tax advisors with specific
reference to their own tax situations. Further tax information is contained in
the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
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FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans acquired by the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities which are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or the Adviser, acting under guidelines
approved and monitored by the Fund's Board, after considering trading activity,
availability of reliable price information and other relevant information, that
an adequate trading market exists for that security. To the extent that, for a
period of time, qualified institutional buyers cease purchasing such restricted
securities pursuant to Rule 144A and Section 4(2), the level of illiquidity of a
Fund holding such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolio from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap trans-
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action on a net basis, I.E. the payment obligations of the Fund and the
counterparty will be netted out with the Fund receiving or paying, as the case
may be, only the net amount of the two payment obligations. A Fund will
segregate, on a daily basis, cash or liquid high quality debt securities with a
value at least equal to the Fund's net obligations, if any, under a swap
agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: 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 NationsBank 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.
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
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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. To the extent these securities 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.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
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.
Since each of the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds will invest primarily in securities issued by issuers
located in one state, each of these Funds is susceptible to changes in value due
to political and economic factors affecting that state's issuers. A comparable
municipal bond fund which is not concentrated in obligations issued by issuers
located in one state would be less susceptible to these risks. If any issuer of
securities held by one of these Funds is unable to meets its financial
obligations, that Fund's income, capital, and liquidity may be adversely
affected.
The fourth most populous state, Florida, rated "Aa" by Moody's and "AA" by both
S&P and Fitch, has been and continues to be a leading tourist and retiree
destination. Florida's growing population and manageable debt load are just two
of the factors that will help Florida remain a solid investment. Led by the
service, construction and trade sectors, job growth in Florida has rebounded
from the lows of 1991-1992 and is projected to be almost double the national
average for 1996. Tourism was back in 1995 after it had suffered in the prior
two years due to hurricane Andrew and a rash of violent crimes involving foreign
tourists.
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The state of Georgia has one of the best debt structures in the country, hence
the "Aaa" by Moody's, and "AAA" rating by both S&P and Fitch. The population of
Georgia has been growing at twice the national rate for the past four years. Job
growth and economic expansion have been outstanding in recent years, as Georgia
prepares to host the 1996 Summer Olympic Games. Following the Olympics,
Georgia's economy should continue to expand, albeit at a slightly lower rate.
This is due in part to Georgia's competitive manufacturing base, and the diverse
service and transportation center of Atlanta.
Maryland is one of the wealthiest states in the U.S. and has been able to
maintain its "Aaa" rating by Moody's, and "AAA" rating by both Fitch and S&P,
despite the contraction of government and defense related industries. Maryland's
economic base is highly diversified with a lower than average dependence on
manufacturing. Slow growth in Maryland is expected to continue, as government
cutbacks and downsizing reduce the employment opportunities within the state.
Debt ratios are moderate and, with Maryland ranked fifth in per capita income,
it's no surprise that income taxes and highway use taxes provide the vast
majority of support for general obligation debt. As defense cutbacks continue,
Maryland's dependence on income taxes could depress growth within the state
below national levels.
North Carolina, rated "Aaa" by Moody's, and "AAA" by both S&P and Fitch, has
benefited from an inflow of people as well as businesses. This is due in part to
North Carolina's affordable housing, above-average growth in per capita income
and below-average cost of doing business. North Carolina's declining textile
industry has begun to give way to the high-tech and financial sectors, as
evidenced by the title of "Banking Center of the South." Consequently, high wage
job growth has been expanding at a pace greater than national averages and is
expected to continue to do so for the foreseeable future.
The dominance of the manufacturing sector has been both a positive and a
negative for South Carolina. On the positive side, the expansion of
manufacturing, specifically autos and related parts, has lessened the impact of
the naval base closure in Charleston and provided a much needed infusion of new
jobs. On the negative side, the cyclical nature of South Carolina's
manufacturing economy has kept per capita income below national levels and
considerably below regional levels. That said, South Carolina's low debt burden,
strong security arrangements and lack of credit extension have led to a "Aaa"
rating by Moody's, "AA+" rating by S&P and a "AAA" rating by Fitch, for the
state. Combine this with a conservative plan of finance, and South Carolina
looks to be in a very strong financial position, despite its reliance on the
manufacturing sector.
Tennessee's very low debt burden, nearly exclusive use of general obligation
debt and conservative financial policies all combine to give the state of
Tennessee a "Aaa" rating by Moody's, "AA+" rating by S&P, and a "AAA" rating by
Fitch. Tennessee's economy remains in a developing mode, as the state continues
to shift its growth in manufacturing output to autos (Tennessee ranks third in
the nation in automobile production) and related products from textiles.
Tennessee relies on sales tax revenues as a main source of funds. This could
prove to be a limiting factor were it not for Tennessee's strong pattern of job
growth and growing population.
Texas has proven its ability to adapt and rebound to a changing economic
environment, both within the state and abroad. Texas has also historically taken
a conservative approach to financial management, as is reflected in the state's
"Aa" rating by Moody's, "AA" rating by S&P, and "AA-" rating by Fitch. Although
Texas has consistently led the U.S. in employment growth, unemployment in Texas
is above the national average. This is due, in part, to the heavy migration into
the state (in 1994 Texas replaced New York as the second most populous state).
Look for economic conditions in Texas to improve further as Mexico comes out of
its economic dilemma.
The state of Virginia has earned its "Aaa" rating by Moody's and "AAA" rating by
S&P and Fitch, by having a low relative tax rate, high per capita income and
strong growth in service sector jobs.
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A very high share of Virginia's population is college educated, so it's no
surprise that Virginia has the highest per capita income of any of the southern
states. Virginia has also maintained a low unemployment rate despite strong
growth in the labor force. Although it has a large exposure to defense and
related industries, Virginia's prudent financial management and low debt burden
should help to insulate it from any government cutbacks in those areas.
There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. More detailed information about matters relating to each of the
State Intermediate Municipal Bond Funds and State Municipal Bond Funds is
contained in the SAI.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates
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decrease. Certain types of U.S. Government obligations are subject to
fluctuations in yield or value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest four ratings used by S&P for corporate and
municipal bonds, each of which denotes that the securities are investment grade.
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.
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 four ratings used by Moody's for corporate
and municipal bonds,each of which denotes that the securities are investment
grade.
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
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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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and
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therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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
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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.
D&P uses the short-term ratings described above for commercial paper.
Fitch uses the short-term ratings described above for commercial paper.
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 ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for
58
<PAGE>
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:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
59
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes NATIONS SHORT-TERM INCOME
FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND,
NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND AND NATIONS DIVERSIFIED
INCOME FUND (the "Funds") of Nations Fund Trust and
Nations Fund, Inc., each an open-end management
investment company in the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of the
Funds -- Investor C Shares.
This Prospectus sets forth concisely the
information about the Funds that prospective
purchasers of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Short-Term Income
Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations Strategic Fixed
Income Fund
Nations Diversified Income
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 6
Objectives 11
How Objectives Are Pursued 12
How Performance Is Shown 16
How the Funds Are Managed 17
Organization And History 21
About Your Investment
How To Buy Shares 22
How To Redeem Shares 24
How To Exchange Shares 25
Shareholder Servicing And Distribution Plans 27
How The Funds Value Their Shares 28
How Dividends And Distributions Are Made;
Tax Information 28
Appendix A -- Portfolio Securities 30
Appendix B -- Description Of Ratings 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUNDS' SAIS INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Short-Term Income Fund's investment objective is to
seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment
grade fixed income securities.
(Bullet) Nations Short-Intermediate Government Fund's investment objective is
to seek current income consistent with modest fluctuation of
principal. The Fund will invest primarily in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment objective is to seek
current income by investing primarily in securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Strategic Fixed Income Fund's investment objective is to seek
total return by investing primarily in investment grade fixed income
securities. The Fund may invest in long-term, intermediate-term and
short-term securities.
(Bullet) Nations Diversified Income Fund's investment objective is to seek
current income consistent with total return by investing primarily in
a diversified portfolio of fixed income securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities, including U.S. Government
Obligations, are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. The value of a Fund's investments in
debt securities 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Fund's
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor C Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in Investor C Shares of the
indicated Fund over specified periods.
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
SHAREHOLDER TRANSACTION EXPENSES Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Charge (as a percentage of the
lower of the original purchase price or
redemption proceeds)1 .50% .50% .50% .50%
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
SHAREHOLDER TRANSACTION EXPENSES Income Fund
<S> <C>
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the
lower of the original purchase price or
redemption proceeds)1 .50%
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .30% .40% .50% .50%
Rule 12b-1 Fees (After Fee Waivers) .10% .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses (After Expense Reimbursements) .25% .23% .30% .22%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) .90% 1.13% 1.30% 1.22%
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
Income Fund
<S> <C>
Management Fees (After Fee Waivers) .50%
Rule 12b-1 Fees (After Fee Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .27%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) 1.27%
</TABLE>
1 A Deferred Sales Charge is imposed only with respect to Investor C Shares
redeemed within one year of the date of purchase. Investor C Shares purchased
prior to January 1, 1996 will continue to be subject to the 1.00% Deferred
Sales Charge.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
1 Year $ 14 $ 17 $ 18 $ 17
3 Years $ 29 $ 36 $ 41 $ 39
5 Years $ 50 $ 62 $ 71 $ 67
10 Years $ 111 $ 137 $ 157 $ 148
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
Income Fund
<S> <C>
1 Year $ 18
3 Years $ 40
5 Years $ 70
10 Years $ 153
</TABLE>
5
<PAGE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the indicated Fund, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
Nations Short- Nations
Nations Short- Intermediate Government Nations Strategic
Term Income Fund Government Fund Securities Fund Fixed Income Fund
<S> <C> <C> <C> <C>
1 Year $ 9 $ 12 $ 13 $ 12
3 Years $ 29 $ 36 $ 41 $ 39
5 Years $ 50 $ 62 $ 71 $ 67
10 Years $ 111 $ 137 $ 157 $ 148
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
Income Fund
<S> <C>
1 Year $ 13
3 Years $ 40
5 Years $ 70
10 Years $ 153
</TABLE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor C Shares of the Funds will bear either directly or indirectly. Certain
figures contained in the above tables are based on amounts incurred during each
Fund's most recent fiscal year and have been adjusted as necessary to reflect
current service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fees waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. Long-term shareholders of the Funds could pay more in sales
charges than the economic equivalent of the maximum front-end sales charges
applicable to mutual funds sold by members of the National Association of
Securities Dealers, Inc. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed." For a more complete description of
the Rule 12b-1 and shareholder servicing fees payable by the Funds, see
"Shareholder Servicing And Distribution Plans."
Absent fee waivers and reimbursements, "Management Fees," "Rule 12b-1 Fees" and
"Total Operating Expenses" for Investor C Shares of the indicated Fund would
have been as follows: Nations Short-Term Income Fund -- .60%, .75% and 1.85%,
respectively; Nations Short-Intermediate Government Fund -- .60%, .75% and
1.83%, respectively; Nations Strategic Fixed Income Fund -- .60%, .75% and
1.82%; Nations Government Securities Fund -- .64%, .75% and 1.94%, respectively;
and Nations Diversified Income Fund -- .60%, .75% and 1.87%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of a Fund will receive unaudited semi-annual reports describing the
Fund's investment operations and financial statements audited by the Funds'
independent accountant.
6
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.75
Net investment income 0.19 0.57 0.46 0.48
Net realized and unrealized gain/(loss) on
investments (0.08) 0.36 (0.51) 0.26
Net increase/(decrease) in net asset value from
operations 0.11 0.93 (0.05) 0.74
Distributions:
Dividends from net investment income (0.19) (0.57) (0.44) (0.48)
Distributions in excess of net investment
income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.19) (0.57) (0.48) (0.48)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.07% 10.08% (0.51)% 7.73%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,121 $ 6,056 $ 8,102 $ 19,851
Ratio of operating expenses to average net
assets 0.90%+ 0.91% 0.89% 0.87%
Ratio of net investment income to average net
assets 5.72%+ 5.97% 4.84% 4.77%
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.23%+ 1.21% 1.21% 1.29%
Net investment income per share without waivers
and/or expense reimbursements $ 0.18 $ 0.54 $ 0.43 $ 0.45
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 10.00
Net investment income 0.08
Net realized and unrealized gain/(loss) on
investments (0.26)
Net increase/(decrease) in net asset value from
operations (0.18)
Distributions:
Dividends from net investment income (0.07)
Distributions in excess of net investment
income --
Distributions from capital --
Total dividends and distributions (0.07)
Net asset value, end of period $ 9.75
Total return++ (1.82)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,747
Ratio of operating expenses to average net
assets 0.80%+
Ratio of net investment income to average net
assets 5.04%+
Portfolio turnover rate 45%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.40%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.07
</TABLE>
* Nations Short-Term Income Fund Investor C Shares commenced operations on
October 2, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b)# 11/30/95# 11/30/94 11/30/93 11/30/92*
<S> <C> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.16 $ 4.19
Net investment income 0.07 0.22 0.20 0.20 0.10
Net realized and unrealized gain/(loss) on
investments (0.07) 0.21 (0.33) 0.14 (0.03)
Net increase/(decrease) in net asset value from
operations 0.00 0.43 (0.13) 0.34 0.07
Distributions:
Dividends from net investment income (0.07) (0.22) (0.20) (0.20) (0.10)
Distributions in excess of net investment
income (0.00)(a) (0.00)(a) (0.00)(a) -- --
Distributions from net realized capital gains -- -- (0.02) (0.02) --
Total dividends and distributions (0.07) (0.22) (0.22) (0.22) (0.10)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28 $ 4.16
Total return++ (0.10)% 11.15% (2.80)% 8.20% 1.64%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 11,820 $ 13,206 $ 16,725 $ 31,440 $ 24,352
Ratio of operating expenses to average net
assets 1.13%+ 1.10% 1.17% 1.30% 1.18%+
Ratio of net investment income to average net
assets 4.82%+ 5.38% 5.18% 4.65% 4.80%+
Portfolio turnover rate 189% 328% 133% 92% 25%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.36%+ 1.30% 1.38% 1.54% 1.44%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.06 $ 0.21 $ 0.19 $ 0.19 $ 0.09
</TABLE>
* Nations Short-Intermediate Government Fund Investor C Shares commenced
operations on June 17, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately represents the per share data for the period
since use of the undistributed income method did not accord with the results
of operations.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
8
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b)# 05/31/95# 05/31/94 05/31/93*#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.46 $ 10.52
Net investment income 0.47 0.57 0.55 0.59
Net realized and unrealized gain/(loss) on
investments (0.19) 0.06 (0.61) 0.02
Net increase/(decrease) in net asset value from
operations 0.28 0.63 (0.06) 0.61
Distributions:
Dividends from net investment income (0.45) (0.53) (0.50) (0.63)
Dividends in excess of net investment income (0.02) -- (0.01) --
Distributions from net realized capital gains -- -- -- --
Distributions in excess of net realized capital
gains -- -- (0.05) (0.04)
Distributions from capital -- (0.04) (0.04) --
Total dividends and distributions (0.47) (0.57) (0.60) (0.67)
Net asset value, end of period $ 9.67 $ 9.86 $ 9.80 $ 10.46
Total return++ 2.83% 6.76% (0.69)% 5.37%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,558 $ 2,945 $ 5,265 $ 5,998
Ratio of operating expenses to average net
assets 1.48%+ 1.51% 1.48% 1.60%+
Ratio of net investment income to average net
assets 5.68%+ 5.94% 5.33% 5.92%+
Portfolio turnover rate 199% 413% 56% 103%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.63%+ 1.69% 1.69% 1.75%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.47 $ 0.55 $ 0.53 $ 0.42
</TABLE>
* Nations Government Securities Fund Investor C Shares commenced operations on
July 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Per share amounts have been calculated using the average shares method, which
more appropriately presents the per share data for the period since the use
of the undistributed income method did not accord with the results of
operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
9
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 9.94
Net investment income 0.17 0.54 0.47 0.48
Net realized and unrealized gain/(loss) on
investments (0.29) 0.90 (0.89) 0.62
Net increase/(decrease) in net asset value from
operations (0.12) 1.44 (0.42) 1.10
Distributions:
Dividends from net investment income (0.17) (0.54) (0.45) (0.48)
Distributions in excess of net investment
income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.17) (0.54) (0.81) (0.49)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.22)% 15.87% (4.14)% 11.20%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 299 $ 227 $ 41 $ 65
Ratio of operating expenses to average net
assets 1.22%+ 1.21% 1.43% 1.36%
Ratio of net investment income to average net
assets 4.99%+ 5.55% 4.68% 4.65%
Portfolio turnover rate 133% 228% 307% 161%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.33%+ 1.31% 1.51% 1.52%
Net investment income per share without waivers
and/or expense reimbursements $ 0.18 $ 0.53 $ 0.46 $ 0.47
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.97
Net investment income 0.02
Net realized and unrealized gain/(loss) on
investments (0.04)
Net increase/(decrease) in net asset value from
operations (0.02)
Distributions:
Dividends from net investment income (0.01)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.01)
Net asset value, end of period $ 9.94
Total return++ (0.22)%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 84
Ratio of operating expenses to average net
assets 1.03%+
Ratio of net investment income to average net
assets 5.40%+
Portfolio turnover rate 12%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.63%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.02
</TABLE>
* Nations Strategic Fixed Income Fund Investor C Shares commenced operations on
November 16, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
10
<PAGE>
FOR AN INVESTOR C SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR YEAR
ENDED ENDED ENDED ENDED
INVESTOR C SHARES 03/31/96(b) 11/30/95 11/30/94# 11/30/93#
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 9.96
Net investment income 0.21 0.66 0.67 0.70
Net realized and unrealized gain/(loss) on
investments (0.40) 1.15 (1.06) 0.92
Net increase/(decrease) in net asset value from
operations (0.19) 1.81 (0.39) 1.62
Distributions:
Dividends from net investment income (0.21) (0.66) (0.67) (0.70)
Distributions in excess of net investment
income -- -- (0.00)(a) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.21) (0.66) (0.82) (0.70)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.77)% 19.22% (3.77)% 16.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,454 $ 3,582 $ 2,636 $ 3,633
Ratio of operating expenses to average net
assets 1.33%+ 1.55% 1.49% 1.30%
Ratio of net investment income to average net
assets 5.93%+ 6.28% 6.56% 6.27%
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.43%+ 1.68% 1.70% 1.70%
Net investment income per share without waivers
and/or expense reimbursements $ 0.21 $ 0.65 $ 0.65 $ 0.64
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
INVESTOR C SHARES 11/30/92*
<S> <C>
Operating performance:
Net asset value, beginning of period $ 9.93
Net investment income 0.03
Net realized and unrealized gain/(loss) on
investments 0.02
Net increase/(decrease) in net asset value from
operations 0.05
Distributions:
Dividends from net investment income (0.02)
Distributions in excess of net investment
income --
Distributions from net realized capital gains --
Total dividends and distributions (0.02)
Net asset value, end of period $ 9.96
Total return++ 0.54%+++
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 149
Ratio of operating expenses to average net
assets 1.00%+
Ratio of net investment income to average net
assets 7.01%+
Portfolio turnover rate 46%
Ratio of operating expenses to average net
assets without waivers and/or expense
reimbursements 1.60%+
Net investment income per share without waivers
and/or expense reimbursements $ 0.03
</TABLE>
* Nations Diversified Income Fund Investor C Shares commenced operations on
November 9, 1992.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
+++ Unaudited.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method did not accord with the results of
operations.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by invest-
11
<PAGE>
ing primarily in investment grade fixed income securities. The Fund may invest
in long-term, intermediate-term and short-term securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities.
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity and duration of the Fund's portfolio will not exceed three
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the following six nationally recognized statistical rating organizations,
Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service, Inc.
("Fitch"), Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), IBCA Limited or its affiliate, IBCA Inc. (collectively,
"IBCA") or Thomson BankWatch, Inc. ("BankWatch") (collectively, "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; and mortgage-related
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, collateralized mortgage obligations or "CMOs", real
estate investment trust securities or mortgage-backed bonds; other asset-backed
and municipal securities rated by one of the six NRSROs, or, if not so rated,
determined by the Adviser to be of comparable quality to instruments so rated.
The Fund may also invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. 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. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic conditions warrant.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund invests substantially all
of its assets in U.S. Government Obligations and repurchase agreements relating
to such obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will not exceed seven years
and the duration will not
12
<PAGE>
exceed five years. U.S. Government Obligations have historically involved little
risk of loss of principal if held to maturity. However, due to fluctuations in
interest rates, the market value of such securities may vary during the period a
shareholder owns shares of the Fund. The value of the Fund's portfolio generally
will vary inversely with changes in prevailing interest rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six 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-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years and the Fund's duration is expected to be in a range of 3.5 to six years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six 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-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six 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 (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade debt obligations. It is expected that
the average weighted maturity of the Fund's portfolio will be ten years or less
and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; U.S. Government
Obligations; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund also may invest in dividend-paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade
13
<PAGE>
rating categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. 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. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will invest at least 65% of the total value of its assets in investment grade
debt obligations. It is expected that the average weighted maturity of the
Fund's portfolio will greater than five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed and variable rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment-grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds." They tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities.
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. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in "high quality" money market instruments (I.E.,
those within the two highest rating categories or unrated instruments deemed by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, existing circumstances warrant.
GENERAL: Each of the Funds may invest in certain specified derivative
securities, including: interest rate swaps, caps and floors for hedging
14
<PAGE>
purposes; 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 and options
thereon approved by the Commodity Futures Trading Commission ("CFTC") for market
exposure risk-management. Each of the Funds may lend its portfolio securities to
qualified institutional investors and may invest in restricted, private
placement and other illiquid securities. Each of the Funds may engage in reverse
repurchase agreements and dollar roll transactions. Additionally, each Fund may
purchase securities issued by other investment companies, consistent with the
Fund's investment objective and policies.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity and duration of the 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.
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
PORTFOLIO TURNOVER: Generally, the 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 Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
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 U.S.
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.
For more information concerning these and other instruments in which the Funds
invest and their investment practices, see "Appendix A."
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 Funds' investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be
15
<PAGE>
changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time a Fund may advertise the total return and yield on a class of
shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares may be calculated on an average annual total return basis or an aggregate
total return basis. The "total return" of a class of shares refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gains distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of a Fund's portfolio and a Fund's operating
expenses. Investment performance also often reflects the risks associated with
such Fund's investment objective and policies. These factors should be
considered when comparing a Fund's investment results to those of other mutual
funds and other investment vehicles. Since yields fluctuate, yield data cannot
necessarily be used to compare an investment in a Fund with bank deposits,
savings accounts, and similar investment alternatives which often
16
<PAGE>
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Funds offer Primary A, Primary B, Investor
A and Investor N Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in a Fund will not be included in calculations of
yield and total return or yield. Each Fund's annual report contains additional
performance information and is available upon request without charge from the
Funds' distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. The SAI for Nations Fund Trust contains the names of and general
background information concerning the Trustees of Nations Fund Trust. The SAI
for Nations Fund, Inc. contains the names of and general background information
concerning the Directors of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with the Funds'
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares of
a Fund, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to Investment Advisory Agreements, NBAI
is entitled to receive advisory fees, computed daily and paid monthly, at the
annual rate of 0.60% of the average daily net assets of each of Nations Short-
Term Income Fund, Nations Diversified Income Fund, Nations Strategic Fixed
Income Fund and Nations Short-Intermediate Government Fund;
17
<PAGE>
and 0.65% of the first $100 million of the Nations Government Securities Fund's
average daily net assets, plus 0.55% of the Fund's average daily net assets in
excess of $100 million and up to $250 million, plus 0.50% of the Fund's average
daily net assets in excess of $250 million.
For the services provided and the expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.15% of Nations Short-Term Income Fund's,
Nations Short-Intermediate Government Fund's, Nations Government Securities
Fund's, Nations Strategic Fixed Income Fund's and Nations Diversified Income
Fund's average daily net assets.
From time to time, NBAI and/or TradeStreet may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.15% of the following Funds' average daily net assets: Nations
Short-Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund and Nations
Government Securities Fund.
David M. Hetherington, CFA, is a Director of TradeStreet and Managing Director
of Fixed Income Management. Mr. Hetherington is responsible for overseeing all
fixed income product management and is Senior Portfolio Manager for Nations
Short-Term Income Fund. Mr. Hetherington has been Portfolio Manager for the
Nations Short-Term Income Fund since 1995. Prior to assuming his position with
TradeStreet, he was Senior Vice President and Director of Fixed Income for the
Investment Management Group at NationsBank. Mr. Hetherington has worked in the
investment community since 1975. His past experience includes working as a
portfolio manager, a trust investment officer and a securities analyst for First
Citizens Bank and Deposit Guarantee as well as working as an Economist for the
U.S. Department of Labor in the Bureau of Labor Statistics. Mr. Hetherington
received a B.A. in Economics from Duke University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research.
Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud has
been Portfolio Manager for the Nations Diversified Income Fund since 1992. Prior
to assuming his position with TradeStreet, he was Senior Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. Mr.
Ahnrud
18
<PAGE>
has worked for the Investment Management Group at NationsBank since 1985 where
his responsibilities initially included institutional investment management
sales and later involved high yield credit analysis. Mr. Ahnrud received a dual
B.S. in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements 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 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 such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to Co-Administration
Agreements. Under the terms of the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds, including
performing the calculations necessary to determine net asset values and
dividends, preparing tax returns and financial statements, maintaining the
portfolio records and certain general accounting records for the Funds.
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For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the rate of 0.10% of the
following Funds' average daily net assets: Nations Short-Intermediate Government
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund, and
Nations Strategic Fixed Income Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Government Securities Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor Shares. See "Shareholder Servicing And Distribution Plans."
NationsBank of Texas, N.A., ("NationsBank of Texas", or the "Custodian"), serves
as the Funds' custodian. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation.
In return for providing custodial services, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees payable monthly (i) at the
rate of 1.25% of 1% of the average daily net assets of each Fund, (ii) $10.00
per repurchase collateral transaction by the Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachuetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. Each fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor C Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and sales support costs. Any general expenses of
Nations Fund Trust and/or Nations Fund, Inc. that are not readily identifiable
as belonging to a particular investment portfolio are allocated among all
portfolios in the proportion that the assets of a portfolio bear to the assets
of Nations Fund Trust and Nations Fund, Inc. or in such other manner as the
Board of Trustees or Board of Directors deems appropriate.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Investor A, Investor C, Investor N, Primary A
and Primary B Shares. This Prospectus relates only to the Investor C Shares of
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund and Nations Short-Intermediate Government Fund of
Nations Fund Trust. To obtain additional information regarding the Funds' other
classes of shares which may be available to you, contact your Selling Agent (as
defined below) or Nations Fund at 1-800-321-7854.
Each share is without par value, represents an equal proportionate interest in
the related fund with other shares of the same class, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
such fund as are declared in the discretion of Nations Fund Trust's Board of
Trustees. Nations Fund Trust's Declaration of Trust authorizes the Board of
Trustees to classify or reclassify any class of shares into one or more series
of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the 1940 Act
requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's related SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor C Shares of Nations Government Securities Fund of Nations Fund, Inc. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the
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exclusive right to vote on matters affecting only the rights of the holders of
such fund or class. In the event of dissolution or liquidation, holders of each
class will receive pro rata, subject to the rights of creditors, (a) the
proceeds of the sale of that portion of the assets allocated to that class held
in the respective fund of Nations Fund, Inc., less (b) the liabilities of
Nations Fund, Inc. attributable to the respective fund or class or allocated
among the funds or classes based on the respective liquidation value of each
fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings on a regular basis unless
required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor C Shares
in order to accommodate different investors. Purchase orders for Investor C
Shares may be placed through banks, broker/dealers or other financial
institutions (including certain affiliates of NationsBank) that have entered
into a Sales Support Agreement with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund
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reserves the right to redeem the shares held by such plans on 60 days' written
notice. The minimum subsequent investment is $100, except for investments
pursuant to the Systematic Investment Plan described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
With respect to Investor C Shares, the Selling Agents have entered into Sales
Support Agreements with Stephens whereby they will provide various sales support
services to their customers ("Customers") who own Investor C Shares. In
addition, banks, broker/dealers or other financial institutions (including
certain affiliates of NationsBank) that have entered into Servicing Agreements
with Nations Fund ("Servicing Agents") will provide various shareholder services
for their Customers who own Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by their Customers, and delivering required funds, on a timely basis.
Stephens is responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
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How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of a Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Funds that are redeemed within one year of the date of purchase will be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. Investor C Shares purchased prior
to January 1, 1996 remain subject to the 1.00% CDSC (except for Nations
Short-Term Income Fund). No CDSC is imposed on increases in net asset value
above the initial purchase price, including shares acquired by reinvestment of
distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
retirement plans, (except in cases of plan level terminations); (b)
distributions from an IRA following attainment of age 59 1/2; (c) a tax-free
return of an excess contribution to an IRA, and (d) distributions from a
qualified retirement plan that are not subject to the 10% additional Federal
withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected pursuant
to
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Nations Fund's right to liquidate a shareholder's account, including instances
where the aggregate net asset value of the Investor C Shares held in the account
is less than the minimum account size, (iv) in connection with the combination
of Nations Fund with any other registered investment company by merger,
acquisition of assets or by any other transaction, and (v) effected pursuant to
the Automatic Withdrawal Plan discussed below, provided that such redemptions do
not exceed, on an annual basis, 12% of the net asset value of the Investor C
Shares in the account. Shareholders are responsible for providing evidence
sufficient to establish that they are eligible for any waiver of the CDSC.
Nations Fund may terminate any waiver of the CDSC by providing notice in the
Prospectus, but any such termination would affect only shares purchased after
such termination.
Within 120 days after a redemption of Investor C Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor C Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of a Fund if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the and Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer or to a checking or savings account in a stated amount of
not less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor C Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling or Servicing Agent or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquires Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market fund through an
exchange, the CDSC applicable to the original shares purchased will be applied
to any redemption of the acquired shares (except for exchanges of Nations
Short-Term Income Fund shares purchased prior to January 1, 1996,
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which will be subject to the CDSC schedule applicable to the acquired Fund).
Additionally, when an investor exchanges Investor C Shares of a Nations Fund
non-money market fund for shares of the same class of another non-money market
fund or Investor D Shares of any money market fund of Nations Fund, the
remaining period of time (if any) that the CDSC is in effect will be computed
from the time of the initial purchase of the previously held Investor C Shares
(except for shares of Nations Short-Term Income Fund purchased prior to January
1, 1996). If an investor exchanges Investor C Shares of the Nations Short-Term
Income Fund purchased prior to January 1, 1996 for shares of the same class of
another non-money market fund, the remaining period of time that the CDSC
applicable to the acquired shares is in effect will be computed from the time of
the exchange.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one Nations Fund
to another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th or 30th day of the applicable month.
The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, an
investor should contact his/her Selling Agent.
GENERAL: The Funds and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchanges through the AEF). Nations Fund reserves the right to
reject any exchange request. Only shares that may legally be sold in the state
of the investor's residence may be acquired in an exchange. Only shares of a
class that is accepting investments generally may be acquired in an exchange. An
investor may telephone an exchange request by calling his/her Selling or
Servicing Agent which is responsible for transmitting such request to Stephens
or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling or Servicing Agent through which the original
shares were purchased. An investor should consult his/her Selling or Servicing
Agent or Stephens for further information regarding exchanges.
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Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have approved a
Distribution Plan with respect to the Investor C Shares of each Fund. Pursuant
to the Distribution Plan, each Fund may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor C Shares. Payments under the Distribution Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Trustees
provided that the annual rate may not exceed 0.75% of the average daily net
asset value of each Fund's Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as 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 Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution 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 Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the relevant SAI for more details on
the Distribution Plan.
The Trustees and Directors also have approved a shareholder servicing plan
("Investor C Servicing Plan") for each Fund which permits the Funds to
compensate Servicing Agents for services provided to their Customers that own
Investor C Shares. Payments under the Investor C Servicing Plan are calculated
daily and paid monthly at a rate or rates set from time to time by the Funds,
provided that the annual rate may not exceed 0.25% of the average daily net
asset value of the Investor C Shares.
The fees payable under the Investor C Servicing Plan are used primarily to
compensate or reimburse Servicing Agents for shareholder services provided, and
related expenses incurred, by such Servicing Agents. The shareholder services
provided by Servicing Agents may include: (i) aggregating and processing
purchase and redemption requests for Investor C Shares from Customers and
transmitting net purchase and redemption orders to Stephens or the Transfer
Agent; (ii) providing Customers with a service that invests the assets of their
accounts in Investor C Shares pursuant to specific or preauthorized
instructions; (iii) processing dividend and distribution payments from a Fund on
behalf of Customers; (iv) providing information periodically to Customers
showing their positions in Investor C Shares; (v) arranging for bank wires; and
(vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Investor C Servicing Plan
at any time, and payments are subject to the continuation of the Investor C
Servicing Plan described above and the terms of the Servicing Agreements. See
the SAI for more details on the Investor C Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor Shares for various services pro-
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vided in connection with a Customer's account. These fees would be in addition
to any amounts received by a Selling Agent under its Sales Support Agreement
with Stephens or by a Servicing Agent under its Servicing Agreement with Nations
Fund. The Sales Support Agreements and Servicing Agreements require Agents to
disclose to their Customers any compensation payable to the Agent by Stephens or
Nations Fund and any other compensation payable by the Customers for various
services provided in connection with their accounts. Customers should read this
Prospectus in light of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of a Fund during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Selling and Servicing Agents may provide for
the reinvestment of dividends in the form of additional Investor Shares of the
same class in the same Fund. Dividends and distributions are paid in cash within
five Business
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Days of the end of the month or quarter to which the dividend relates. Dividends
and distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor C Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
The Funds intend to distribute substantially all of their investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income tax, whether such income is received in
cash or reinvested in additional shares. (Federal income tax for distributions
to an IRA are generally deferred under the Code.) Corporate investors may be
entitled to the dividends-received deduction on a portion of the dividends from
those Funds investing in the stock of domestic corporations.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and this SAI contains more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates, 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 GNMA, by FNMA and 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 on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool. Foreclosures impose no risk to
principal investment because of the GNMA guarantee.
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 sec-
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ondary 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.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
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. For additional information concerning
mortgage-backed securities, see the related SAI.
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
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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 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 or partnerships.
Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset-backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the 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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations), and other foreign obligations involve special investment
risk, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable
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to foreign issuers may differ from those applicable to domestic issuers. In
addition, foreign banks are not subject to examination by U.S. Government
agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Fund's total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
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 a
Fund is 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 Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to repurchase the securities. In addition, there is a risk of delay
in receiving collateral or securities or in repurchasing the securities covered
by the reverse repurchase agreement or even of a loss of rights in the
collateral or securities in the event the buyer of the securities under the
reverse repurchase agreement files for bankruptcy or becomes insolvent. The
Funds only enter into reverse repurchase agreements (and repurchase agreements)
with counterparties that are deemed by the Adviser to be credit worthy. Reverse
repurchase agreements are speculative techniques involving leverage, and are
subject to asset coverage requirements if the Funds do not establish and
maintain a segregated account (as described above). 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 Fund's 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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
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the proceeds of a dollar roll may not exceed transaction costs.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
Foreign currency hedging transactions are an attempt to protect a 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. 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 will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted. The Funds will generally
not enter into forward contracts with terms of greater than one year.
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FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect such Funds against adverse market movements by investing
in futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not
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provide for payment to a Fund within seven days after notice, and illiquid
restricted securities are subject to the limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by such Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Nations Diversified Income Fund may invest in
lower-rated debt securities. Lower-rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. Each
Fund that may invest in lower-rated debt securities intends to limit their
investments in lower-quality debt securities to 35% of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt
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to service their payment obligations, meet projected goals, or obtain additional
financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: 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.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax exempt leases. 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. To the extent these securities
are
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illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. 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.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. 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.
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.
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.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures con-
38
<PAGE>
tracts transactions can be offset at favorable prices; possible reduction of a
Fund's total return due to the use of hedging; possible lack of liquidity due to
daily limits on price fluctuation; imperfect correlation between the contracts
and the securities or currencies being hedged; and potential losses in excess of
the amount invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of, and therefore backed by the full faith and
credit of, the U.S. Treasury, in some cases payment of interest and principal on
such obligations is guaranteed by the U.S. Government, E.G., GNMA certificates;
in other cases interest and principal are not guaranteed, E.G., obligations of
the Federal Home Loan Bank System and the Federal Farm Credit Bank. No assurance
can be given that the U.S. Government would provide financial support to
government-sponsored instrumentalities if it is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
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Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
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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 well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to
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show relative standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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
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more affected by external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and interest
in a timely fashion is considered adequate.
TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in busi-
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ness, 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:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
44
<PAGE>
Prospectus
INVESTOR C SHARES
JULY 31, 1996
This Prospectus describes NATIONS MANAGED INDEX
FUND (the "Fund") of Nations Fund Trust, an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of the Fund -- Investor C Shares.
This Prospectus sets forth concisely the
information about the Fund that a prospective
purchaser of Investor C Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust is
contained in a separate Statement of Additional
Information (the "SAI") that has been filed with
the Securities and Exchange Commission (the "SEC")
and is available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAI, dated July
31, 1996, is incorporated by reference in its
entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Fund. TradeStreet Investment Associates,
Inc. ("TradeStreet") is sub-investment adviser to
the Fund. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations
Managed
Index Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
(Nations Fund Logo appears here)
<PAGE>
Table Of Contents
About The Fund
Prospectus Summary 3
Expenses Summary 4
Objective 5
How Objective Is Pursued 5
How Performance Is Shown 8
How The Fund Is Managed 8
Organization And History 11
About Your Investment
How To Buy Shares 12
How To Redeem Shares 13
How To Exchange Shares 15
Shareholder Servicing And Distribution Plans 16
How The Fund Values Its Shares 17
How Dividends And Distributions are Made; Tax
Information 18
Appendix A -- Portfolio Securities 19
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUND'S SAI
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS
FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Fund
Prospectus Summary
(Bullet) TYPE OF COMPANY: Open-end management investment company.
(Bullet) INVESTMENT OBJECTIVE AND POLICIES: Nations Managed Index Fund's
investment objective is to seek, over the long-term, to provide a total
return which (gross of fees and expenses) exceeds the total return of
the Standard & Poor's 500 Composite Stock Price Index.
(Bullet) When consistent with the Fund's objective, the Fund will
employ various techniques to manage capital gain
distributions.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Fund. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the Fund.
See "How The Fund Is Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Managed Index Fund declares and
pays dividends from net investment income each calendar quarter. The
Fund's net realized capital gains, including net short-term capital
gains, are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of the Fund, there is no assurance that it will be able to do
so. Investments in the Fund are not insured against loss of principal.
Investments by the Fund in common stocks and other equity securities
are subject to stock market risk, which is the risk that the value of
the stocks the Fund holds may decline over short or even extended
periods. Certain of the Fund's permissible investments may constitute
derivative securities. Certain types of derivative securities can,
under certain circumstances, significantly increase an investor's
exposure to market or other risks. For a discussion of these and other
factors, see "How Objective Is Pursued -- Risk Considerations" and
"Appendix A -- Portfolio Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Fund. The
following table summarizes shareholder transaction and operating expenses for
Investor C Shares of the Fund. The Example shows the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over specified
periods.
INVESTOR C SHARES
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
SHAREHOLDER TRANSACTION EXPENSES Index Fund
Maximum Sales Load Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (as a percentage of the lower of the original purchase price
or redemption proceeds) .50%
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees 0.50%
Rule 12b-1 Fees 0.25%
Shareholder Servicing Fees 0.25%
Other Expenses 0.25%
Total Operating Expenses 1.00%
</TABLE>
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Fund, assuming (1) a 5% annual return and (2) redemption at the end of
each time period.
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Index Fund
1 Year $ --
3 Years $ --
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in
Investor C Shares will bear either directly or indirectly. The figures in the
above table are based on estimates for the fiscal year. For a more complete
description of the Fund's operating expenses, see "How The Fund Is Managed." For
a more complete description of the Rule 12b-1 and shareholder servicing fees
payable by the Fund, see "Shareholder Servicing And Distribution Plan."
4
<PAGE>
You would pay the following expenses on a $1,000 investment in Investor C Shares
of the Fund, assuming a 5% annual return but no redemption.
<TABLE>
<CAPTION>
<S> <C>
Nations
Managed
Index Fund
1 Year $ --
3 Years $ --
</TABLE>
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Objective
Nations Managed Index Fund's investment objective is to seek, over the
long-term, to provide a total return which (gross of fees and expenses) exceeds
the total return of the Standard & Poor's 500 Composite Stock Price Index.
How Objective Is Pursued
NATIONS MANAGED INDEX FUND: In seeking to achieve its investment objective, the
Fund will invest in selected equity securities that are included in the Standard
& Poor's 500 Composite Stock Price Index (the "S&P 500 Index" or the "Index")1.
The S&P 500 Index is a value weighted index consisting of 500 common stocks
chosen for market size, liquidity and industry group representation.
The Adviser believes that a managed equity index portfolio can provide investors
with positive incremental performance relative to the S&P 500 Index while
minimizing the downside risk of underperforming the index over time.
The initial stock universe considered by the Adviser is the S&P 500 Index, the
Adviser ranks the attractiveness of each security according to a multifactor
valuation model. Both value and momentum factors are considered in the ranking
process. Value factors such as book value, earnings yield and cash flow measure
a stock's intrinsic worth versus its market price, while momentum
characteristics such as price momentum, earnings growth and earnings
acceleration measure a stock relative to others in the same industry. Each stock
is assigned a ranking from 1 to 10 (best to worst). The Adviser then screens out
the lower rated stocks resulting in a portfolio of 300 to 350 holdings that
capture the investment characteristics of the index.
The S&P 500 Index consists of 500 selected common stocks, most of which are
listed on the New York Stock Exchange. Different stocks have different
weightings in the Index, depending on the amount of stock outstanding and its
current price.
In addition, when consistent with the Fund's investment objective, the Fund will
employ various techniques to manage capital gain distributions. These techniques
include utilizing a share identification methodology whereby the Fund will
specifically identify each lot of shares of portfolio securities that it holds,
which will allow the Fund to sell first those specific shares with the highest
tax basis in order to reduce the amount of recognized capital gains as compared
(1) "Standard & Poor's 500" is a registered service mark of Standard & Poor's
Corporation ("S&P").
5
<PAGE>
with a sale of identical portfolio securities, if any, with a lower tax basis.
The Fund will sell first those shares with the highest tax basis only when it is
in the best interest of the Fund to do so, and reserves the right to sell other
shares when appropriate. In addition, the Fund may, at times, sell portfolio
securities in order to realize capital losses. Such capital losses would be used
to offset realized capital gains thereby reducing capital gain distributions.
Additionally, the Adviser will, consistent with the multi-factor valuation model
discussed above, employ a low portfolio turnover strategy designed to defer the
realization of capital gains.
Under normal conditions, the Adviser will attempt to invest as much of the
Fund's assets as is practical and, in any event at least 65% of its total
assets, in common stocks which are included in the S&P 500 Index. The Fund is
expected, however, to maintain a position in high-quality short-term debt
securities and money market instruments to meet redemption requests. If the
Adviser believes that market conditions warrant a temporary defensive posture,
the Fund may invest without limitation in high-quality short-term debt
securities and money market instruments. These securities and money market
instruments may include domestic and foreign commercial paper, certificates of
deposit, bankers' acceptances and time deposits, U.S. Government securities and
repurchase agreements.
The 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 Commodity Futures
Trading Commission ("CFTC") and options thereon for market exposure risk
management. The Fund may lend its portfolio securities to qualified
institutional investors. The Fund also may invest in restricted, private
placement and other illiquid securities. In addition, the Fund may invest in
securities issued by other investment companies, consistent with the Fund's
investment objective and policies.
ABOUT THE INDEX: The S&P 500 Index is composed of 500 common stocks, which are
chosen by S&P on a statistical basis to be included in the Index. The inclusion
of a stock in the S&P 500 Index in no way implies that S&P believes the stock to
be an attractive investment. The Index is determined, composed and calculated by
S&P without regard to the Fund. S&P is neither a sponsor of, nor in any way
affiliated with the Fund, and S&P makes no representation or warranty, expressed
or implied, on the advisability of investing in the Fund or as to the ability of
the Index to track general stock market performance. S&P disclaims all
warranties of merchantability or fitness for a particular purpose or use with
respect to the Index or any data included therein.
PORTFOLIO TURNOVER: Generally, the Fund will purchase portfolio securities for
capital appreciation or investment income, or both, and not for short-term
trading profits. While it is not possible to predict exactly annual portfolio
turnover rates, it is expected that under normal market conditions, the annual
portfolio turnover rate for the Fund will not exceed 25%.
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of the Fund, there is no assurance that it will be able to do so. No
single fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in the Fund are not insured against loss
of principal.
Investments by the Fund in common stocks and other equity securities are subject
to stock market risk. The value of the stocks that the Fund holds, like the
broader stock market, may decline over short or even extended periods.
Certain of the Fund's permissible investments may 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 the Fund's investment objective and do not
6
<PAGE>
unduly increase the Fund's exposure to market or other risks. For additional
risk information regarding the Fund's investments in particular instruments, see
"Appendix A -- Portfolio Securities."
The techniques employed by the Adviser to seek to manage capital gain
distributions will generally only have the effect of deferring the realization
of capital gains. For example, to the extent that the capital gains recognized
on a sale of portfolio securities arise from the sale of specifically-identified
securities with higher tax bases, subsequent sales of the same portfolio
securities will be calculated by reference to the lower tax basis securities
that remain in the portfolio. Under this scenario, an investor who purchases
shares of the Fund after the first sale could receive capital gain distributions
that are higher than the distributions that would have been received if this
methodology had not been used. Therefore, certain investors actually could be
disadvantaged by the techniques employed by the Fund to seek to manage capital
gain distributions, depending on the timing of their purchase of Fund shares.
Even if there are no subsequent sales, upon a redemption or exchange of Fund
shares an investor will have to recognize gain to the extent that the net asset
value of Fund shares at such time exceeds such investor's tax basis in his or
her Fund shares. As a result, the taxable gain realized by an investor upon a
redemption or exchange may be greater (or the loss realized at such time may be
less) than otherwise would have been realized. The Fund's low portfolio turnover
strategy will have the same effect.
The various techniques employed by the Fund to manage capital gain distributions
may result in the accumulation of substantial unrealized gains in the Fund's
portfolio. Moreover, the realization of capital gains is not entirely within the
Fund's control because it is at least partly dependent on shareholder purchase
and redemption activity. Capital gain distributions may vary considerably from
year-to-year.
INVESTMENT LIMITATIONS: The Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAI.
The Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities are
not considered members of any industry.)
2. Make loans, except that the Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of the Fund's assets, the Fund will not hold
more than 10% of the voting securities of any issuer.
The investment objective and policies of the Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of the Fund change, shareholders should consider whether
the Fund remains an appropriate investment in light of their then current
position and needs.
7
<PAGE>
In order to register the Fund's shares for sale in certain states, the Fund may
make commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should the Fund determine that any
such commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Fund may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Fund may be calculated on an average annual total return basis
or an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return on a class of shares over one-, five-,
and ten-year periods or the life of the Fund (as stated in the advertisement)
that would equate an initial amount invested at the beginning of a stated period
to the ending redeemable value of the investment, assuming the reinvestment of
all dividend and capital gain distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring
period, again assuming the reinvestment of all dividends and capital gain
distributions. Total return may also be presented for other periods.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of the Fund by
the maximum public offering price per share on the last day of that period.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Fund's portfolio and the Fund's
operating expenses. Investment performance also often reflects the risks
associated with the Fund's investment objective and policies. These factors
should be considered when comparing the Fund's investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Fund with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor C Shares, the Fund offers Primary A, Primary B and
Investor A Shares. Each class of shares may bear different sales charges,
shareholder servicing fees and other expenses, which may cause the performance
of a class to differ from the performance of the other classes. Total return and
yield quotations will be computed separately for each class of the Fund's
shares. Any fees charged by a selling agent and/or servicing agent directly to
its customers' accounts in connection with investments in the Fund will not be
included in calculations of total return or yield. The Fund's annual report
contains additional performance information and is available upon request
without charge from the Fund's distributor or your selling agent.
How The Fund Is Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Board of Trustees. Nations Fund Trust's SAI contains the names of and
general background information concerning each Trustee of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially
8
<PAGE>
comply in all material respects with the recommendations set forth in the May 9,
1994 Report of the Advisory Group on Personal Investing of the Investment
Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Fund. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Fund. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees,
and in accordance with the Fund's investment policies, the Adviser formulates
guidelines and lists of approved investments for the Fund, makes decisions with
respect to and places orders for the Fund's purchases and sales of portfolio
securities and maintains records relating to such purchases and sales. The
Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in the Fund, if the Adviser believes that the quality of
the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, the Fund may invest in
securities of companies with which NationsBank has a lending relationship. For
the services provided and expenses assumed pursuant to an Investment Advisory
Agreement, NBAI is entitled to receive an advisory fee, computed daily and paid
monthly, at the annual rate of 0.50% of the average daily net assets of the
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by the Fund.
For the services provided and the expenses assumed pursuant to a Sub-Advisory
Agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.10% of the average daily net assets of the
Fund.
Greg W. Golden is a Structured Products Manager, Equity Management for
TradeStreet and is Portfolio Manager for Nations Equity Index Fund and Nations
Managed Index Fund. He has been Portfolio Manager for Nations Managed Index Fund
since its inception. Prior to assuming his position with TradeStreet, he was
Vice President and Structured Products Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1990. His
past experience includes portfolio management, derivatives management and
quantitative analysis for the Investment Management Group at NationsBank and
Sovran Bank of Tennessee. Mr. Golden received a B.B.A. in Finance from Belmont
University. He is a Chartered Financial Analyst candidate and a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act. Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
inter-
9
<PAGE>
pretations thereof, 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.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to an Administration Agreement. Pursuant to the terms of
the Administration Agreement, Stephens provides various administrative and
corporate secretarial services to the Fund, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Fund.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Fund including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Fund, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Fund.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of the Fund's average daily net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Fund's administrative operations. For
providing such services NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Fund's average daily net
assets.
Shares of the Fund are sold on a continuous basis by Stephens, as the Fund's
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Fund. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor C Shares of the Fund. See "Shareholder Servicing And
Distribution Plan."
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the Fund.
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of the Fund, (ii) $10.00 per repurchase collateral transaction
by the Fund, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Fund.
First Data serves as transfer agent (the "Transfer Agent") for the Fund's
Investor C Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Fund, as well as certain expenses
attributable to Investor C Shares, are deducted from accrued income before
dividends are declared. The Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
Trustees' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums;
10
<PAGE>
outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor C Shares bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and/or sales support costs. Any general expenses
of Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
Organization And History
The Fund is a member of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently consists of more than
43 distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Fund currently
offers four classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares and Investor C Shares. This Prospectus relates only to the Investor C
Shares of Nations Managed Index Fund. To obtain additional information regarding
the Fund's other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See Nations Fund Trust's SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
certain classes and series of Nations Fund Trust and therefore could be
considered to be a controlling person of these classes and series for purposes
of the 1940 Act. For more detailed information concerning the percentage of each
class or series of shares over which NationsBank and its affiliates possessed or
shared power to dispose or vote as of a certain date, see Nations Fund Trust's
SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
11
<PAGE>
About Your Investment
How To Buy Shares
Stephens has established various procedures for purchasing Investor C Shares in
order to accommodate different investors. Purchase orders for Investor C Shares
may be placed through banks, broker/dealers or other financial institutions
(including certain affiliates of NationsBank) that have entered into a Sales
Support Agreement with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for "IRA" investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Account
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor C Shares are purchased at net asset value per share. Purchases may be
effected on days on which the New York Stock Exchange (the "Exchange") is open
for business (a "Business Day").
With respect to Investor C Shares, the Selling Agents have entered into Sales
Support Agreements with Stephens whereby they will provide various sales support
services to their customers ("Customers") who own Investor C Shares. In
addition, banks, broker/dealers or other financial institutions (including
certain affiliates of NationsBank) that have entered into Servicing Agreements
with Nations Fund ("Servicing Agents") will provide various shareholder services
for their Customers who own Investor C Shares. Servicing Agents and Selling
Agents are sometimes referred to hereafter as "Agents." From time to time the
Agents, Stephens and Nations Fund may agree to voluntarily reduce the maximum
fees payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor C Shares are recorded on the books of the Fund, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor C Shares of the Fund
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Fund's Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Agent placing the order. Payment for orders which are not
received or accepted will be returned after prompt inquiry to the sending Agent.
The Agents are responsible for transmitting orders for purchases of Investor C
Shares by
12
<PAGE>
their Customers, and delivering required funds, on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Fund's Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor C Shares. On a bi-monthly,
monthly or quarterly basis, a shareholder may direct cash to be transferred
automatically from his/her checking or savings account at any bank to his/her
Fund account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Agent.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Agent that transmitted the original purchase order. Redemption orders are
effected at the net asset value per share next determined after receipt of the
order by Stephens or by the Transfer Agent, less any applicable CDSC. The Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting their Customers' accounts with the redemption
proceeds on a timely basis. No charge for wiring redemption payments is imposed
by Nations Fund. Except for any CDSC which may be applicable upon redemption of
Investor C Shares, as described below, there is no redemption charge.
Redemption proceeds are normally wired to the redeeming Agent within three
Business Days after receipt of the order by Stephens or by the Transfer Agent.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Nations Fund may redeem a shareholder's Investor C Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of an Agent
pursuant to arrangements between the Agent and its Customers. Nations Fund also
may redeem shares of the Fund involuntarily or make payment for redemption in
readily marketable securities or other property under certain circumstances in
accordance with the 1940 Act.
Prior to effecting a redemption of Investor C Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfac-
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tory to Nations Fund have previously been made. Nations Fund may require any
additional information reasonably necessary to evidence that a redemption has
been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers, Investor C Shares
of the Fund that are redeemed within one year of the date of purchase may be
subject to a CDSC equal to 0.50% of the lesser of the net asset value or the
purchase price of the shares being redeemed. No CDSC is imposed on increases in
net asset value above the initial purchase price, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
purchase of any Investor C Shares, all purchases are deemed to have been made on
the trade date of the transaction. In determining whether a CDSC is applicable
to a redemption, the calculation will be made in the manner that results in the
lowest possible charge being assessed. In this regard, it will be assumed that
the redemption is first of shares held for the longest period of time or shares
acquired pursuant to reinvestment of dividends or distributions. The charge will
not be applied to dollar amounts representing an increase in the net asset value
since the time of purchase.
The CDSC will be waived on redemptions of Investor C Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations); (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor C shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor C Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC. Nations Fund may terminate any
waiver of the CDSC by providing notice in the Funds' Prospectus, but any such
termination would affect only shares purchased after such termination.
Within 120 after a redemption of Investor C Shares of a Fund, a shareholder may
reinvest any portion of the proceeds of such redemption in Investor C Shares of
the same Fund. The amount which may be so reinvested is limited to an amount up
to, but not exceeding, the redemption proceeds (or to the nearest full share if
fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor C
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Fund if the value of the
Investor C Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor C Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor C Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about
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the 10th or 25th day of the applicable month of withdrawal. Investor C Shares
will be redeemed (net of any applicable CDSC) as necessary to meet withdrawal
payments. Withdrawals will reduce principal and may eventually deplete the
shareholder's account. If a shareholder desires to establish an AWP after
opening an account, a signature guarantee will be required. An AWP may be
terminated by a shareholder on 30 days' written notice to his/her Agent or by
Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor C Shares of a Nations
Fund non-money market fund to acquire shares of the same class that are offered
by another non-money market fund of Nations Fund or Investor D Shares of any
Nations Fund money market fund when he or she believes that a shift between
funds is an appropriate investment decision. A qualifying exchange is based on
the next calculated net asset value per share of each fund after the exchange
order is received.
No CDSC will be imposed in connection with an exchange of Investor C Shares that
meets the requirements discussed in this section.
If a shareholder acquired Investor C Shares of a Nations Fund non-money market
fund or Investor D Shares of a Nations Fund money market fund through an
exchange, the CDSC applicable to the original shares purchased will be applied
to any redemption of the acquired shares. Additionally, when an investor
exchanges Investor C Shares of a Nations Fund non-money market fund for shares
of the same class of another non-money market fund or Investor D Shares of any
money market fund of Nations Fund, the remaining period of time (if any) that
the CDSC is in effect will be computed from the time of the initial purchase of
the previously held Investor C Shares.
AUTOMATIC EXCHANGE FEATURE: Under the Funds' Automatic Exchange Feature ("AEF")
a shareholder may automatically exchange at least $25 on a monthly or quarterly
basis. A shareholder may direct proceeds to be exchanged from one Nations Fund
to another as allowed by the applicable exchange rules within the prospectus.
Exchanges will occur on or about the 15th or 30th day of the applicable month.
The shareholder must have an existing position in both Funds in order to
establish the AEF. This feature may be established by directing a request to the
Transfer Agent by telephone or in writing. For additional information, an
investor should contact his/her Selling Agent.
GENERAL: The Fund and each of the other funds of Nations Fund may limit the
number of times this exchange feature may be exercised by a shareholder within a
specified period of time. Also, the exchange feature may be terminated or
revised at any time by Nations Fund upon such notice as may be required by
applicable regulatory agencies (presently 60 days for termination or material
revision), absent unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor C Shares exchanged must have a current value of at least $1,000
(except for exchange through the AEF). Nations Fund reserves the right to reject
any exchange
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request. Only shares that may legally be sold in the state of the investor's
residence may be acquired in an exchange. Only shares of a class that is
accepting investments generally may be acquired in an exchange. An investor may
telephone an exchange request by calling his/her Agent which is responsible for
transmitting such request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Agent through which the original shares were purchased.
An investor should consult his/her Agent or Stephens for further information
regarding exchanges.
Shareholder Servicing And Distribution
Plans
Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have approved a
Distribution Plan with respect to Investor C Shares of the Fund. Pursuant to the
Distribution Plan, the Fund may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Fund's
Investor C Shares. Payments under the Investor C Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trustees, provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Fund's Investor C Shares.
The fees payable under the Distribution Plan are used (i) to compensate Selling
Agents for providing sales support assistance relating to Investor C Shares,
(ii) to pay for promotional activities intended to result in the sale of
Investor C Shares such as 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 Distribution Plan are
paid to compensate Selling Agents for providing the services described in (i)
and (iii) above, with any remaining amounts being used by Stephens to partially
defray other expenses incurred by Stephens in distributing Investor C Shares.
Fees received by Stephens pursuant to the Distribution 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 Stephens.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAI for more details on the
Distribution Plan.
The Trustees also have approved a shareholder servicing plan ("Servicing Plan")
for the Fund which permits the Fund to compensate Servicing Agents for services
provided to their Customers that own Investor C Shares. Payments under the
Servicing Plan are calculated daily and paid monthly at a rate or rates set from
time to time by the Fund, provided that the annual rate may not exceed 0.25% of
the average daily net asset value of the Fund's Investor C Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor C Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor C
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distri-
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bution payments from the Fund on behalf of Customers; (iv) providing information
periodically to Customers showing their positions in Investor C Shares; (v)
arranging for bank wires; and (vi) providing general shareholder liaison
services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAI for more
details on the Servicing Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor C Shares for various services provided in connection with
Customers' accounts. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Distribution Plan, pay a bonus or other
consideration or incentive to Agents who sell a minimum dollar amount of shares
of the Fund during a specified period of time. Stephens also may, from time to
time, pay additional consideration to Agents not to exceed 0.75% of the offering
price per share on all sales of Investor C Shares as an expense of Stephens or
for which Stephens may be reimbursed under the Distribution Plan or upon receipt
of a CDSC. Any such additional consideration or incentive program may be
terminated at any time by Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Fund
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
How The Fund Values Its Shares
The Fund calculates the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Even though the Fund seeks to manage taxable
distributions, the Fund may be expected to earn and distribute taxable income
and may also be expected to realize and distribute capital gains from time to
time. Dividends from net investment income are declared and paid each calendar
quarter by the Fund. The Fund's net realized capital gains (including net
short-term capital gains) are distributed at least annually.
Investor C Shares of the Fund are eligible to receive dividends when declared,
provided however, that the purchase order for such shares is received at least
one day prior to the dividend declaration and such shares continue to be
eligible for dividends through and including the day before the redemption order
is executed.
The net asset value of Investor C Shares will be reduced by the amount of any
dividend or distribution. Certain Agents may provide for the reinvestment of
dividends in the form of additional Investor C Shares of the same class in the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor C Shares.
TAX INFORMATION: The Fund intends to qualify as a "regulated investment company"
under the Code. Such qualification relieves the Fund of liability for Federal
income tax on amounts distributed in accordance with the Code.
The Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by the
Fund of its net investment income and the excess, if any, of its net short-term
capital gain over its net long-term capital loss are taxable as ordinary income
to shareholders who are not currently exempt from Federal income tax, whether
such income is received in cash or reinvested in additional shares.
Corporate investors in the Fund may be entitled to the dividends-received
deduction on all or a portion of the Fund's dividends.
Substantially all of the Fund's net realized long-term capital gains will be
distributed at least annually. The Fund will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income taxes as long-term capital
gains, regardless of how long the shareholders have held the Fund's shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may
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<PAGE>
be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Fund to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Fund and its
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAI.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
the Fund may invest. The "How Objective Is Pursued" section of the Prospectus
identifies the Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
BORROWINGS: When the Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Fund may
borrow money from banks for temporary purposes in amounts of up to one-third of
its total assets, provided that borrowings in excess of 5% of the value of the
Fund's total assets must be repaid prior to the purchase of portfolio
securities. Under the requirements of the 1940 Act, the Fund is required to
maintain an asset coverage (including the proceeds of the borrowings) of at
least 300% of all borrowings.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by the Fund in commercial
paper will consist of issues rated in a manner consistent with the Fund's
investment policies and objective. In addition, the Fund 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 the Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: The Fund may invest in
debt securities convertible into or exchangeable for equity securities,
preferred stocks or warrants. Preferred stocks are securities that represent an
ownership interest in a corporation providing the owner with claims on a
company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FOREIGN CURRENCY TRANSACTIONS: The Fund may enter into foreign currency exchange
transactions to convert foreign currencies to and from the U.S. dollar. The Fund
either enters into these transactions on a spot (I.E., cash) basis at the spot
rate prevailing in the foreign currency exchange market, or uses forward
contracts to purchase or sell foreign currencies. A forward foreign currency
exchange contract is an obligation by the Fund to purchase or sell a specific
currency at a future date, which may be any fixed number of days from the date
of the contract.
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Foreign currency hedging transactions are an attempt to protect the 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. Neither spot transactions nor forward
foreign currency exchange contracts eliminate fluctuations in the prices of the
Fund's portfolio securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: The Fund may attempt to
reduce the overall level of investment risk of particular securities and attempt
to protect the Fund against adverse market movements by investing in futures,
options and other derivative instruments. These include the purchase and writing
of options on securities (including index options) and options on foreign
currencies, and investing in futures contracts for the purchase or sale of
instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes the Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, the Fund could be left in a less favorable
position. Additional risks inherent in the use of futures, options, forward
contracts and swaps include: imperfect correlation between the price of futures,
options and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. The Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Fund will not hold more
than 15% of the value of its net assets in securities that are illiquid or such
lower percentage as may be required by the states in which the Fund sells its
shares. Repurchase agreements, time deposits and guaranteed investment contracts
that do not provide for payment to the Fund within seven days after notice, and
illiquid restricted securities are subject to the limitation on illiquid
securities.
If otherwise consistent with its investment objective and policies, the Fund may
purchase securities that are not registered under the Securities Act of 1933, as
amended (the "1933 Act") but which can be sold to "qualified institutional
buyers" in accordance with Rule 144A and Section 4(2) under the 1933 Act. Any
such security will not be considered illiquid so long as it is determined by the
Fund's Board of Trustees or the Adviser, acting under guidelines approved and
monitored by the Fund's Board, after considering trading activity, availability
of reliable price information and other relevant information that an adequate
trading market exists for that security. To the extent that, for a period of
time, qualified institutional buyers cease purchasing such restricted securities
pursuant to Rule 144A and Section 4(2), the level of illiquidity of a Fund
holding such securities may increase during such period.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
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OTHER INVESTMENT COMPANIES: The Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. As
a shareholder of another investment company, the 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 the Fund bears directly in connection with its
own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by the Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause the Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. The Fund may enter into repurchase agreements jointly with other
investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the Fund may
lend its portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by collateral equal at all times in value to at least the market value
of the securities loaned. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of the Fund may not exceed 30% of the
value of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Fund may purchase
and sell futures contracts and related options with respect to non-U.S. stock
indices, non-U.S. interest rates and foreign currencies, that have been approved
by the CFTC for investment by U.S. investors, for the purpose of hedging against
changes in values of the Fund's securities or changes in the prevailing levels
of interest rates or currency exchange rates. The contracts entail certain
risks, including but not limited to the following: no assurance that futures
contracts transactions can be offset at favorable prices; possible reduction of
the Fund's total return due to the use of hedging; possible lack of liquidity
due to daily limits on price fluctuation; imperfect correlation between the
contracts and the securities or currencies being hedged; and potential losses in
excess of the amount invested in the futures contracts themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless the Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that the
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not
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debts of the U.S. Treasury, in some cases payment of interest and principal on
such obligations is guaranteed by the U.S. Government, E.G., Government National
Mortgage Association certificates; in other cases interest and principal are not
guaranteed, E.G., obligations of the Federal Home Loan Bank System and the
Federal Farm Credit Bank. No assurance can be given that the U.S. Government
would provide financial support to government-sponsored instrumentalities if it
is not obligated to do so by law. The market value of U.S. Government
obligations may fluctuate due to fluctuations in market interest rates. As a
general matter, the value of debt instruments, including U.S. Government
obligations, declines when market interest rates increase and rises when market
interest rates decrease. Certain types of U.S. Government obligations are
subject to fluctuations in yield or value due to their structure or contract
terms.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
22
<PAGE>
Prospectus
INVESTOR N SHARES
JULY 31, 1996
This Prospectus describes NATIONS VALUE FUND,
NATIONS EQUITY INCOME FUND, NATIONS BALANCED ASSETS
FUND, NATIONS CAPITAL GROWTH FUND, NATIONS EMERGING
GROWTH FUND AND NATIONS DISCIPLINED EQUITY FUND
(the "Funds") of Nations Fund Trust and Nations
Fund, Inc., each an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of the
Funds -- Investor N Shares.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor N Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
GROWTH AND INCOME FUNDS:
Nations Value Fund
Nations Equity Income Fund
Nations Balanced
Assets Fund
GROWTH FUNDS:
Nations Capital Growth Fund
Nations Emerging
Growth Fund
Nations Disciplined
Equity Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 6
Objectives 11
How Objectives Are Pursued 12
How Performance Is Shown 18
How The Funds Are Managed 19
Organization And History 23
About Your Investment
How To Buy Shares 25
Shareholder Servicing And Distribution Plans 26
How To Redeem Shares 28
How To Exchange Shares 30
How The Funds Value Their Shares 31
How Dividends And Distributions Are Made; Tax
Information 31
Appendix A -- Portfolio Securities 32
Appendix B -- Description Of Ratings 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE
FUNDS' SAIS INCORPORATED HEREIN BY REFERENCE, IN
CONNECTION WITH THE OFFERING MADE BY THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY NATIONS FUND OR ITS
DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING BY NATIONS FUND OR BY THE DISTRIBUTOR IN
ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Value Fund's investment objective is to seek growth of
capital by investing in companies that are believed to be
undervalued.
(Bullet) Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by
investing primarily in companies with above average
dividend yields.
(Bullet) Nations Balanced Assets Fund's investment objective is to seek
total return by investing in equity and fixed income
securities.
(Bullet) Nations Capital Growth Fund's investment objective is to seek
growth of capital by investing in companies that are believed
to have superior earnings growth potential.
(Bullet) Nations Emerging Growth Fund's investment objective is to seek
capital appreciation by investing in emerging growth companies
that are believed to have superior long-term earnings growth
prospects.
(Bullet) Nations Disciplined Equity Fund's investment objective is to
seek growth of capital by investing in companies that
are expected to produce significant increases in
earnings per share.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare and pay dividends from
net investment income each calendar quarter. Each Fund's net realized
capital gains, including net short-term capital gains are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in common stocks and other equity securities are
subject to stock market risk, which is the risk that the value of the
stocks the Fund holds may decline over short or even extended periods.
Investments by a Fund in debt securities, including U.S. Government
Obligations, are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. The value of a Fund's investments in
debt securities 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Funds'
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. Minimum subsequent
investment is $100, except for investments pursuant to the systematic
investment plan. See "How To Buy Shares."
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor N Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations Nations
Nations Equity Balanced Nations Nations
Value Income Assets Capital Growth Emerging Growth
Fund Fund Fund Fund Fund
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None None None None None
Deferred Sales Charge (as a percentage of
the lower of the original purchase price
or redemption proceeds)1 None None None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75% .70% .75% .75% .75%
Rule 12b-1 Fees (After fee waivers) .50% .50% .50% .75% .75%
Shareholder Servicing Fees .25% .25% .25% .25% .25%
Other Expenses (After expense
reimbursements) .21% .20% .25% .21% .24%
Total Operating Expenses (After fee
waivers and expense reimbursements) 1.71%2 1.65%2 1.75%2 1.96% 1.99%
</TABLE>
<TABLE>
<CAPTION>
Nations
Disciplined
Equity
Fund
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of
the lower of the original purchase price
or redemption proceeds)1 None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees .75%
Rule 12b-1 Fees (After fee waivers) .75%
Shareholder Servicing Fees .25%
Other Expenses (After expense
reimbursements) .27%
Total Operating Expenses (After fee
waivers and expense reimbursements) 2.02%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge applicable at the time of purchase. See
"How To Redeem Shares -- Contingent Deferred Sales Charge."
4
<PAGE>
EXAMPLES:
An investment of $1,000 would incur the following expenses, assuming (1) a 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations Nations
Nations Equity Balanced Capital
Value Income Assets Growth
Fund Fund Fund Fund
<S> <C> <C> <C> <C>
1 Year $ 17 $ 17 $ 18 $ 20
3 Years $ 54 $ 52 $ 55 $ 62
5 Years $ 93 $ 90 $ 93 $ 106
10 Years $ 202 $ 195 $ 206 $ 229
</TABLE>
<TABLE>
<CAPTION>
Nations Nations
Emerging Disciplined
Growth Equity
Fund Fund
<S> <C> <C>
1 Year $ 20 $ 21
3 Years $ 62 $ 63
5 Years $ 107 $ 109
10 Years $ 232 $ 235
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in the
Funds will bear either directly or indirectly. The figures contained in the
above tables are based on amounts incurred during each Fund's most recent fiscal
year and have been adjusted as necessary to reflect current service provider
fees. The "Other Expenses" figures in the above table are based on estimates for
the current fiscal year. There is no assurance that any fee waivers and/or
expense reimbursements will continue beyond the current fiscal year. If fee
waivers and/or expense reimbursements are discontinued, the amounts contained in
the "Examples" above may increase. Long-term shareholders of the Funds could pay
more in sales charges than the economic equivalent of the maximum front-end
sales charges applicable to mutual funds sold by members of the National
Association of Securities Dealers, Inc. For more complete descriptions of the
Funds' operating expenses, see "How The Funds Are Managed." Absent fee waivers,
"Rule 12b-1 Fees" and "Total Operating Expenses" would have been as follows:
Nations Value Fund -- .75% and 1.96%, respectively; Nations Equity Income
Fund -- .75% and 1.90%, respectively; and Nations Balanced Assets Fund -- .75%
and 2.00%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
5
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal years
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization And History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VALUE FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.15 $ 12.94 $ 13.71 $ 13.08
Net investment income 0.03 0.17 0.15 0.11
Net realized and unrealized gain/(loss) on investments 1.05 3.89 (0.22) 0.63
Net increase/(decrease) in net asset value from operations 1.08 4.06 (0.07) 0.74
Distributions:
Dividends from net investment income (0.06) (0.18) (0.16) (0.11)
Distributions from net realized capital gains (0.62) (0.67) (0.54) --
Total dividends and distributions (0.68) (0.85) (0.70) (0.11)
Net asset value, end of period $ 16.55 $ 16.15 $ 12.94 $ 13.71
Total return++ 6.90% 33.55% (0.69)% 5.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 88,861 $ 83,699 $ 42,530 $ 10,449
Ratio of operating expenses to average net assets 1.71%+ 1.69% 1.68% 1.71%+
Ratio of net investment income to average net assets 0.55%+ 1.15% 1.10% 1.23%+
Portfolio turnover rate 12% 63% 75% 64%
Ratio of operating expenses to average net assets without
waivers
and/or expense reimbursements 1.71%+ 1.69% 1.68% 1.72%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.03 $ 0.17 $ 0.15 $ 0.11
Average commission rate paid (b) $ 0.0648 N/A N/A N/A
</TABLE>
* Nations Value Fund Investor N Shares commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
6
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS EQUITY INCOME FUND
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 05/31/95 05/31/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.77 $ 11.40 $ 11.98
Net investment income 0.22 0.34 0.37
Net realized and unrealized gain on investments 1.76 1.11 0.22
Net increase in net asset value resulting from operations 1.98 1.45 0.59
Distributions:
Dividends from net investment income (0.28) (0.35) (0.36)
Distributions from net realized capital gains (0.37) (0.73) (0.81)
Total dividends and distributions (0.65) (1.08) (1.17)
Net asset value, end of period $ 13.10 $ 11.77 $ 11.40
Total return++ 17.21% 14.03% 4.84%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 104,026 $ 75,371 $ 46,043
Ratio of operating expenses to average net assets 1.65%+ 1.67% 1.69%+
Ratio of net investment income to average net assets 2.09%+ 3.00% 2.66%+
Portfolio turnover rate 59% 158% 116%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.65%+ 1.68% 1.70%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.22 $ 0.34 $ 0.37
Average commission rate paid (b) $ 0.0287 N/A N/A
</TABLE>
* Nations Equity Income Investor N Shares commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
7
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS BALANCED ASSETS FUND
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 12.63 $ 10.40 $ 10.85 $ 10.61
Net investment income 0.09 0.28 0.17 0.14
Net realized and unrealized gain/(loss) on investments 0.45 2.22 (0.44) 0.23
Net increase/(decrease) in net asset value from operations 0.54 2.50 (0.27) 0.37
Distributions:
Dividends from net investment income (0.14) (0.25) (0.18) (0.13)
Distributions from net realized capital gains (1.41) (0.02) -- --
Total dividends and distributions (1.55) (0.27) (0.18) (0.13)
Net asset value, end of period $ 11.62 $ 12.63 $ 10.40 $ 10.85
Total return++ 4.69% 24.35% (2.51)% 3.45%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 65,764 $ 65,275 $ 52,905 $ 27,982
Ratio of operating expenses to average net assets 1.75%+ 1.74% 1.73% 1.65%+
Ratio of net investment income to average net assets 2.16%+ 2.50% 1.56% 2.07%+
Portfolio turnover rate 83% 174% 156% 50%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.75%+ 1.74% 1.74% 1.72%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.09 $ 0.28 $ 0.17 $ 0.14
Average commission rate paid (b) $ 0.0598 N/A N/A N/A
</TABLE>
* Nations Balanced Assets Fund Investor N Shares commenced operations on June
7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
8
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 14.15 $ 11.17 $ 11.05 $ 10.55
Net investment income/(loss) (0.02) (0.03) (0.01) (0.01)
Net realized and unrealized gain on investments 0.37 3.27 0.13 0.53
Net increase in net asset value from operations 0.35 3.24 0.12 0.52
Distributions:
Dividends from net investment income -- -- -- (0.02)
Distributions from net realized capital gains (1.19) (0.26) (0.00)(b) --
Total dividends and distributions (1.19) (0.26) (0.00)(b) (0.02)
Net asset value, end of period $ 13.31 $ 14.15 $ 11.17 $ 11.05
Total return++ 2.77% 29.80% 1.12% 4.95%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 41,045 $ 40,868 $ 23,591 $ 9,511
Ratio of operating expenses to average net assets 1.96%+ 1.98% 1.90% 1.80%+
Ratio of net investment income/(loss) to average net assets (0.62)%+ (0.29)% (0.15)% (0.16)%+
Portfolio turnover rate 25% 80% 56% 81%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.96%+ 1.98% 1.91% 1.89%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements $ (0.02) $ (0.03) $ (0.01) $ (0.02)
Average commission rate paid (c) $ 0.0632 N/A N/A N/A
</TABLE>
* Nations Capital Growth Fund Investor N Shares commenced operations on June 7,
1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
9
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS EMERGING GROWTH FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96#(a) 11/30/95 11/30/94# 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 13.93 $ 11.24 $ 10.82 $ 9.88
Net investment income/(loss) (0.05) (0.07) (0.14) (0.02)
Net realized and unrealized gain on investments 1.23 3.16 0.70 0.96
Net increase in net asset value from operations 1.18 3.09 0.56 0.94
Distributions:
Distributions from net realized capital gains (1.50) (0.40) (0.14) --
Total dividends and distributions (1.50) (0.40) (0.14) --
Net asset value, end of period $ 13.61 $ 13.93 $ 11.24 $ 10.82
Total return++ 9.52% 28.75% 5.17% 9.51%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 34,989 $ 32,349 $ 15,909 $ 3,594
Ratio of operating expenses to average net assets 1.99%+ 1.98% 2.01% 1.80%+
Ratio of net investment income/(loss) to average net assets (1.06)%+ (0.92)% (1.29)% (1.15)%+
Portfolio turnover rate 39% 139% 129% 159%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.99%+ 1.98% 2.01% 2.01%+
Net investment income/(loss) per share without waivers
and/or expense reimbursements (0.05) $ (0.07) $ (0.09) $ (0.03)
Average commission rate paid (b) $ 0.0599 N/A N/A N/A
</TABLE>
* Nations Emerging Growth Fund Investor N Shares commenced operations on June
7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Average commission rate paid per share of securities purchased and sold by
the Fund.
10
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DISCIPLINED EQUITY FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 16.89 $ 13.02 $ 12.77
Net investment income/(loss) (0.01) 0.03 (0.02)
Net realized and unrealized gain/(loss) on investments 0.35 3.87 0.28
Net increase/(decrease) in net asset value from operations 0.34 3.90 0.26
Distributions:
Dividends from net investment income -- (0.03) (0.01)
Distributions from net realized capital gains (0.23) -- --
Return of capital -- -- (0.00)(b)
Total dividends and distributions (0.23) (0.03) (0.01)
Net asset value, end of period $ 17.00 $ 16.89 $ 13.02
Total return++ 2.08% 29.94% 2.02%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 18,412 $ 16,874 $ 177
Ratio of operating expenses to average net assets 2.02%+ 2.30% 2.09%+
Ratio of net investment income/(loss) to average net assets (0.18)%+ (0.15)% (0.84)%+
Portfolio turnover rate 47% 124% 177%
Ratio of operating expenses to average net assets without waivers and/or
expense reimbursements 2.02%+ 2.30% 2.52%+
Net investment income/(loss) per share without waivers and/or expense
reimbursements (0.01) $ 0.03 $ (0.03)
Average commission rate paid (c) $ 0.0627 N/A N/A
</TABLE>
* Nations Disciplined Equity Fund Investor N Shares commenced operations on May
20, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
(b) Amount represents less than $0.01 per share.
(c) Average commission rate paid per share of securities purchased and sold by
the Fund.
Objectives
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: Nations Value Fund's investment objective is to seek growth
of capital by investing in companies that are believed to be undervalued.
NATIONS EQUITY INCOME FUND: Nations Equity Income Fund's investment objective is
to seek current income and growth of capital by investing primarily in companies
with above average dividend yields.
NATIONS BALANCED ASSETS FUND: Nations Balanced Assets Fund's investment
objective is to seek total return by investing in equity and fixed income
securities.
11
<PAGE>
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: Nations Capital Growth Fund's investment objective
is to seek growth of capital by investing in companies that are believed to have
superior earnings growth potential.
NATIONS EMERGING GROWTH FUND: Nations Emerging Growth Fund's investment
objective is to seek capital appreciation by investing in emerging growth
companies that are believed to have superior long-term earnings growth
prospects.
NATIONS DISCIPLINED EQUITY FUND: Nations Disciplined Equity Fund's investment
objective is to seek growth of capital by investing in companies that are
expected to produce significant increases in earnings per share.
How Objectives Are Pursued
GROWTH AND INCOME FUNDS:
NATIONS VALUE FUND: The Fund invests in stocks drawn from a broad universe of
companies monitored by the Adviser. The Adviser closely monitors these
companies, rating them for quality and projecting their future earnings and
dividends as well as other factors. To qualify for purchase, an issuer would
normally have a market capitalization of $500 million or more and have an
average daily trading volume of at least $3 million. These requirements are
generally considered by the Adviser to be adequate to support normal purchase
and sale activity without materially affecting prevailing market prices of the
issuer's shares. The Adviser also analyzes key financial ratios that measure the
growth, profitability, and leverage of such issuers that it believes will help
maintain a portfolio of above-average quality.
Stocks are selected from this universe based on the Adviser's judgment of their
total return potential. The Adviser buys stocks that it believes are undervalued
relative to the overall stock market. The principal factor considered by the
Adviser in making these determinations is the ratio of a stock's price to
earnings relative to corresponding ratios of other stocks in the same industry
or economic sector. The Adviser believes that companies with lower price-to-
earnings ratios are more likely to provide better opportunities for capital
appreciation. This "value" approach generally produces a dividend yield greater
than the market average. The Adviser will attempt to temper risk by broad
diversification among economic sectors and industries. Through this strategy,
the Fund pursues above-average returns while seeking to avoid above-average
risks.
The Fund invests under normal market conditions at least 65% of its total assets
in common stocks. In addition to common stocks, the Fund also may invest in
preferred stocks, securities convertible into common stock, and other types of
securities having common stock characteristics (such as rights and warrants to
purchase equity securities). Although the Fund invests primarily in
publicly-traded common stocks of companies incorporated in the United States,
the Fund may invest up to 20% of its assets in foreign securities. The Fund also
may hold up to 20% of its total assets in obligations issued or guaranteed as to
payment of principal and interest by the U.S. Government, its agencies or
instrumentalities ("U.S. Government Obligations"), and investment grade
securities of domestic companies. Obligations with the lowest investment grade
rating (E.G. rated "BBB" by Standard & Poor's Corporation ("S&P") or "Baa" by
Moody's Investor's Service, Inc. ("Moody's")) have speculative characteristics,
and changes in economic conditions or other circumstances are more likely to
lead to a weakened capacity to make principal and interest payments than is the
case with higher grade debt obligations. Subsequent to its purchase by the 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
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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.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
NATIONS EQUITY INCOME FUND: The investment program of the Fund is based on
several premises. First, dividends are normally a more stable and predictable
source of return than capital appreciation. While the price of a company's stock
generally increases or decreases in response to short-term earnings and market
fluctuations, its dividends are generally less volatile. Second, diversifying
equity holdings in a manner that includes every major economic sector
contributes to reduced volatility, without a commensurate reduction in expected
investment return. Finally, investing in dividend paying stocks in all the
economic sectors can provide greater income than the Standard & Poor's 500
Composite Stock Price Index ("S&P 500 Index") with less volatility.
Collectively, these traits may be combined in such a fashion as to produce
returns in excess of the market (S&P 500 Index) on a comparable risk basis.
New purchases for the Fund will generally be made in equity securities that:
(Bullet) are income producing;
(Bullet) appear undervalued relative to the S&P 500 Index on a risk adjusted
basis; and
(Bullet) have favorable trends in personal stock ownership by the underlying
company's officers and/or directors.
To achieve its objective, the Fund, under normal circumstances, will invest at
least 65% of its assets in income-producing common stocks, including securities
convertible into or ultimately exchangeable for common stock (I.E., convertible
bonds or convertible preferred stock), whose prospects for dividend growth and
capital appreciation are considered favorable by the Adviser. The securities
held by the Fund generally will be listed on a national exchange or, if not so
listed, will usually have an established over-the-counter market.
In order to further enhance its income, the Fund also may invest its assets in
fixed income securities (corporate and government bonds of various maturities),
preferred stocks and warrants. The Fund may invest in debt securities that are
considered investment grade (E.G. securities rated in one of the top four
investment categories by S&P or Moody's, or if not rated, are of equivalent
investment quality as determined by the Adviser). Obligations rated in the
lowest of the top four investment grade rating categories (E.G., rated "BBB" by
S&P) have speculative characteristics and changes in economic conditions or
other circumstances are more likely to lead to a weakened capacity to make
principal and interest payments than is the case with higher grade debt
obligations. The Fund also may invest up to 5% of its assets in debt securities
that are rated below investment grade (E.G. rated "BB" by S&P), or if not rated,
are of equivalent investment quality as determined by the Adviser. Non-
investment grade debt securities are sometimes referred to as "high yield bonds"
or "junk bonds." They tend to have speculative characteristics, generally
involve more risk of principal and income than higher rated securities, and have
yields and market values that tend to fluctuate more than higher quality
securities. The Fund will invest in such high-yield debt securities only when
the Adviser believes that the issue presents minimal credit risk. For a
description of corporate debt ratings, see "Appendix B." Although the Fund
invests primarily in securities of U.S. issuers, the Fund may invest up to 20%
of its total assets in foreign securities. The Fund will treat foreign
securities as illiquid unless there is an active and substantial secondary
market for such securities.
The Fund may invest in various money market instruments. The Fund may invest
without limitation in such instruments pending investment, to meet anticipated
redemption requests, or as a temporary defensive measure if market conditions
warrant.
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NATIONS BALANCED ASSETS FUND: In pursuing the Fund's objective, the Adviser will
allocate the Fund's assets based upon its judgment of the relative valuation and
the expected returns of the three major asset classes in which the Fund
principally invests: common stocks, fixed income securities and cash
equivalents. In assessing relative value and expected returns, the Adviser will
evaluate current economic and financial market conditions (both domestically and
internationally), current interest rate trends, earnings and dividend prospects
for common stocks, and overall financial market stability. These asset classes
are actively managed in an effort to maximize total return. In general, the
Adviser believes that common stocks offer the best opportunity for long-term
capital appreciation.
The Fund invests in common and preferred stocks of U.S. corporations and of
foreign issuers, as well as securities convertible into common stocks, and other
types of securities having common stock characteristics (such as rights and
warrants to purchase equity securities) that meet the Adviser's stringent
criteria. Fundamental research and valuation analysis are emphasized in the
stock selection process. Stock holdings are typically those of seasoned,
financially strong companies with favorable industry positioning.
Under normal circumstances, at least 25% of the total value of the Fund's assets
will be invested in fixed income securities. The Fund may invest in government,
corporate and municipal debt securities, as well as mortgage-backed securities.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. Debt obligations
acquired by the Fund will be rated investment grade at the time of purchase by
S&P, Moody's, Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service,
Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc.
(collectively "IBCA"), or Thomson BankWatch, Inc. ("BankWatch") or, if unrated,
determined by the Adviser to be comparable in quality to instruments so rated.
Obligations with the lowest investment grade rating (E.G. rated "BBB" by S&P or
"Baa" by Moody's) have speculative characteristics, and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations. See "Appendix B" for a description of these ratings designations.
Subsequent to its purchase by the 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 NationsBank to be of
comparable quality at the time of purchase to rated obligations that may be
acquired.
Although the Fund invests primarily in securities of U.S. issuers, the Fund may
invest up to 25% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
GROWTH FUNDS:
NATIONS CAPITAL GROWTH FUND: The investment philosophy of the Fund is based on
the belief that companies with superior growth characteristics selling at
reasonable prices will, over time, outperform the market. Therefore, the Fund
will generally seek to invest in larger capitalization, high-quality companies
which possess above average earnings growth potential.
The Fund's equity investments will generally be made in companies which share
some of the following characteristics:
(Bullet) above average earnings growth relative to the S&P 500 Index;
(Bullet) established operating histories, strong balance sheets and favorable
financial characteristics; and
(Bullet) above-average return on equity relative to the S&P 500 Index.
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In addition, the Fund's investment program enables it to invest in the following
types of companies:
(Bullet) companies that generate or apply new technologies, new and improved
distribution techniques, or new services, such as those in the business
equipment, electronics, specialty merchandising and health service
industries;
(Bullet) companies that own or develop natural resources, such as energy
exploration companies;
(Bullet) companies that may benefit from changing consumer demands and
lifestyles, such as financial service organizations and
telecommunication companies;
(Bullet) foreign companies, including those in countries with more rapid
economic growth than the U.S.;
(Bullet) companies whose earnings growth is projected at a pace in excess of the
average company (I.E., growth companies); and
(Bullet) companies whose earnings are temporarily depressed and are currently
out of favor with most investors.
Through intensive research, visits to many companies each year, and efficient
response to changing market conditions, the Adviser seeks to make the most of
the Fund's flexible charter.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. In addition to common stocks, the Fund also may invest
in preferred stocks, securities convertible into common stocks and other types
of securities having common stock characteristics (such as rights and warrants
to purchase equity securities). Although the Fund invests primarily in publicly
traded common stocks of companies incorporated in the United States, the Fund
may invest up to 20% of its total assets in foreign securities.
The Fund also may invest in various money market instruments. The Fund may
invest without limitation in such instruments pending investment, to meet
anticipated redemption requests, or as a temporary defensive measure if market
conditions warrant.
NATIONS EMERGING GROWTH FUND: The Fund will invest in common stocks and
securities convertible into common stocks selected from a universe of emerging
growth companies monitored by the Adviser. Most of the companies will have
revenues between $50 million and $1.5 billion and a debt ratio of less than 50%
of capitalization. The universe focuses on companies with above average earnings
growth rates and profit margins, yet the portfolio may include positions of
special situation companies whose growth is expected to accelerate. These
companies are believed to offer significant opportunities for capital
appreciation and the Adviser will attempt to identify these opportunities before
their potential is recognized by investors in general.
In selecting industries and companies for investment, the Adviser will consider
overall growth prospects, financial condition, competitive position, technology,
research and development, innovative products, marketing expertise,
productivity, labor costs, raw material costs and sources, profit margins,
return on investment, structural changes in local economies, capital resources,
the degree of governmental regulation or deregulation, management and other
factors.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks. The Fund also may invest in various money market
instruments. The Fund may invest without limitation in such instruments pending
investment, to meet anticipated redemption requests, or as a temporary defensive
measure if market conditions warrant.
The volatility of emerging growth stocks is higher than that of larger
companies. Many of these stocks trade over the counter and may not have
widespread interest among institutional investors. These securities may have
larger potential for gains but also carry more risk if unexpected company
developments adversely affect the stock prices. To help reduce risk, the Fund is
diversified and typically invests in 75 to 100 companies which represent a broad
range of industries and sectors, both in the United States and abroad. Although
the Fund invests primarily in securities of U.S. issuers, the Fund may invest up
to 20% of its total assets in foreign securities.
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NATIONS DISCIPLINED EQUITY FUND: The investment philosophy of the Fund is based
on the premise that companies with positive earnings trends also should
experience positive trends in their share price. Based on this philosophy, the
Fund invests primarily in the common stocks of companies that the Adviser
believes are likely to experience significant increases in earnings. By pursuing
this investment philosophy, the Fund seeks to provide investors with long-term
capital appreciation which exceeds that of the S&P 500 Index.
In selecting stocks for purchase by the Fund, the Adviser utilizes quantitative
analysis supported by fundamental research. This approach seeks to identify
companies that have experienced positive historical earnings trends, as
evidenced by earnings forecasts issued by investment banks, broker/dealers and
other investment professionals. The Adviser believes that companies experiencing
such earnings trends have the potential to generate significant increases in per
share earnings. The Adviser also believes that companies with increasing
earnings should experience positive trends in their stock price. Although the
Fund seeks to invest in companies with increasing earnings, the Fund's
investment objective focuses on long-term capital appreciation; income is not an
objective of the Fund.
Under normal market conditions, the Fund invests at least 65% of its total
assets in common stocks of domestic issuers. With respect to the remainder of
the Fund's assets, the Fund may invest in a broad range of equity and debt
instruments, including preferred stocks, securities (debt and preferred stock)
convertible into common stock, warrants and rights to purchase common stocks,
options, U.S. government and corporate debt securities and various money market
instruments. The Fund will invest primarily in medium- and large-sized companies
(I.E. companies with market capitalizations of $500 million or greater) that are
determined to have favorable price/earnings ratios. The Fund also may invest in
securities issued by companies with market capitalizations of less than $500
million. The volatility of small-capitalization stocks is typically greater than
that of larger companies. To help reduce risk, the Fund will invest in the
securities of companies representing a broad range of industries and economic
sectors.
The Fund's investments in debt securities, including convertible securities,
will be limited to securities rated investment grade (E.G. securities rated in
one of the top four investment categories by a nationally recognized statistical
rating organization or, if not rated, are of equivalent quality as determined by
the Adviser). Obligations rated in the lowest of the top four investment grade
rating categories have speculative characteristics and changes in economic
conditions or other circumstances are more likely to lead to a weakened capacity
to make principal and interest payments than is the case with higher grade debt
obligations.
The Fund may invest up to 20% of its total assets in foreign securities. For
temporary defensive purposes if market conditions warrant, the Fund may invest
without limitation in preferred stocks, investment grade debt instruments and
money market instruments.
GENERAL: Each Fund 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. Nations Balanced Assets Fund also may engage in dollar
roll transactions. Each Fund may lend its portfolio securities to qualified
institutional investors and may invest in restricted, private placement and
other illiquid securities and securities issued by other investment companies,
consistent with the Fund's investment objective and policies. Each Fund may
invest in real estate investment trust securities. For more information
concerning these and other instruments in which the Funds may invest and their
investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the 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
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portfolio turnover rate exceeds 100%, it may result in higher brokerage costs
and possible tax consequences for the Fund and its shareholders. For the Funds'
portfolio turnover rates, see "Financial Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. The net asset value of the shares of the Funds will
fluctuate based on market conditions. Therefore, investors should not rely upon
the Funds for short-term financial needs, nor are the Funds meant to provide a
vehicle for participating in short-term swings in the stock market. Investments
in a Fund are not insured against loss of principal.
Investments by a Fund in a 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 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 short-term debt instruments in response to interest rate
movements. In addition, debt securities that are not backed by the United States
Government are subject to credit risk, which is the risk that the issuer may not
be able to pay principal and/or interest when due.
Certain of the 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 Funds'
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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be changed without such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current positions
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments
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more restrictive than the investment policies and limitations described in this
Prospectus and the SAIs. Should a Fund determine that any such commitment is no
longer in the best interests of the Fund, it may consider terminating sales of
its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. BOTH TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND
ARE NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class
of shares of the Funds may be calculated on an average total return basis or an
aggregate total return basis. Average annual total return refers to the average
annual compounded rates of return over one-, five-, and ten-year periods or the
life of a Fund (as stated in the advertisement) that would equate an initial
amount invested at the beginning of a stated period to the ending redeemable
value of the investment (reflecting the deduction of any applicable contingent
deferred sales charge ("CDSC")), and assuming the reinvestment of all dividend
and capital gains distributions. Aggregate total return reflects the total
percentage change in the value of the investment over the measuring period again
assuming the reinvestment of all dividends and capital gains distributions.
Total return may also be presented for other periods or may not reflect a
deduction of the CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market conditions, the composition of the Funds' portfolios and the Funds'
operating expenses. Investment performance also often reflects the risks
associated with the Funds' investment objective and policies. These factors
should be considered when comparing the Funds' investment results to those of
other mutual funds and other investment vehicles. Since yields fluctuate, yield
data cannot necessarily be used to compare an investment in the Funds with bank
deposits, savings accounts, and similar investment alternatives which often
provide an agreed-upon or guaranteed fixed yield for a stated period of time.
In addition to Investor N Shares, the Funds offer Primary A, Primary B, Investor
A and Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such sales charges were reflected. Any fees charged by a
selling agent and/or servicing agent directly to its customers' accounts in
connection with investments in the Funds will not be included in calculations of
total return or yield. The Funds' annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investors' selling agent.
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How The Funds Are Managed
The business and affairs of Nations Fund Trust and Nations Fund, Inc. are
managed under the direction of their Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc., through its investment
management division, serves as investment adviser to the Funds. NBAI is an
indirect wholly owned subsidiary of NationsBank, which in turn is a wholly owned
banking subsidiary of NationsBank Corporation, a bank holding company organized
as a North Carolina corporation. NBAI has its principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest in securities of
companies with which NationsBank has a lending relationship. For the services
provided and expenses assumed pursuant to various Investment Advisory
Agreements, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the annual rates of: 0.75% of the average daily net assets of each
of Nations Capital Growth Fund, Nations Emerging Growth Fund, Nations
Disciplined Equity Fund, Nations Value Fund and Nations Balanced Assets Fund;
and 0.75% of the first $100 million of Nations Equity Income Fund's average
daily net assets, plus 0.70% of the Fund's average daily net assets in excess of
$100 million and up to $250 million, plus 0.60% of the Fund's average daily net
assets in excess of $250 million.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rates of: 0.20% of Nations Equity Income Fund's average
daily net assets and 0.25% of Nations Value Fund's, Nations Balanced Assets
Fund's, Nations Capital Growth Fund's, Nations Emerging Growth Fund's and
Nations Disciplined Equity Fund's average daily net assets.
From time to time, NationsBank (and/or TradeStreet) may waive or reimburse
(either voluntarily or pursuant to applicable state limitations) advisory fees
and/or expenses payable by a Fund.
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For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Equity Income Fund -- 0.67%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Value Fund -- 0.75%; Nations Capital Growth Fund -- 0.75%;
Nations Emerging Growth Fund -- 0.75%; Nations Disciplined Equity Fund -- 0.75%;
and Nations Balanced Assets Fund -- 0.75%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Equity Income Fund -- 0.67%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Value Fund -- 0.25%; Nations Capital Growth Fund -- 0.25%; Nations Emerging
Growth Fund -- 0.25%; Nations Disciplined Equity Fund -- 0.25%; Nations Balanced
Assets Fund -- 0.25%; and Nations Equity Income Fund -- .20%.
Sharon M. Herrmann, CFA, is a Director of Equity Management for TradeStreet and
Senior Portfolio Manager for Nations Value Fund. Ms. Herrmann has been Portfolio
Manager of the Nations Value Fund since 1989. Prior to assuming her position
with TradeStreet she was Senior Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. Ms. Herrmann has worked for the
Investment Management Group at NationsBank since 1981 where her responsibilities
included fund management and institutional portfolio management. She attended
Virginia Wesleyan College. Ms. Herrmann holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Philip J. Sanders, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Capital Growth Fund. Mr.
Sanders has been Portfolio Manager for Nations Capital Growth Fund since 1995.
Prior to assuming his position with TradeStreet, he was Senior Vice President
and Senior Portfolio Manager for the Investment Management Group at NationsBank.
Mr. Sanders has worked in the financial investment community since 1981. His
past experience includes portfolio management, equity research and financial
analysis for the Investment Management Group at NationsBank and Duke Power
Company. Mr. Sanders received a B.A. in Economics from the University of
Michigan and an M.B.A. from University of North Carolina at Charlotte. He holds
the Chartered Financial Analyst designation and is a member of the Association
for Investment Management and Research as well as the North Carolina Society of
Financial Analysts, Inc.
Julie L. Hale, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Balanced Assets Fund. Ms.
Hale has been Portfolio Manager for the Nations Balanced Assets Fund since 1995.
Prior to assuming her position with TradeStreet, she was Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. She
has worked in the investment community since 1981. Her past experience includes
research analysis and portfolio management for Mercantile Safe Deposit and
20
<PAGE>
Trust, and National City Bank. Ms. Hale received a B.S. in Business and Finance
from Mount St. Mary's College and an M.B.A. from Kent State University. She
holds the Chartered Financial Analyst designation and is a member of the
Association for Investment Management and Research as well as the North Carolina
Society of Security Analysts, Inc. She is also a member of the National
Association for Petroleum Investment Analysts and the World Affairs Council of
Washington, D.C.
Edward E. (Jack) Smiley, Jr., CFA, is a Senior Product Manager, Equity
Management for TradeStreet and Senior Portfolio Manager for Nations Emerging
Growth Fund. Mr. Smiley has been the Portfolio Manager for Nations Emerging
Growth Fund since 1992. Prior to assuming his position at TradeStreet, he was
Senior Vice President and Senior Portfolio Manager for the Investment Management
Group at NationsBank. He has worked in the investment community since 1968. His
past experience includes management consulting and portfolio management for
Interfirst Investment Management, Merrill Lynch and Dean Witter. Mr. Smiley
received a B.B.A. in Management from Southern Methodist University. He holds the
Chartered Financial Analyst designation and is a member of the Association for
Investment Management and Research as well as the Dallas Association of
Investment Analysts.
Jeffery C. Moser, CFA, is a Senior Product Manager, Equity Development for
TradeStreet and Senior Portfolio Management for Nations Disciplined Equity Fund.
Mr. Moser has been the Portfolio Manager for Nations Disciplined Equity Fund
since 1995. Prior to assuming his position at Trade Street, he was Senior Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Moser has worked for the Investment Management Group at
NationsBank since 1983 where his responsibilities included institutional
portfolio management and equity analysis. Mr. Moser graduated Phi Beta Kappa
with a B.S. in Mathematics from Wake Forest University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research as well as the North Carolina Society of Financial
Analysts, Inc.
Eric S. Williams, CFA, is a Senior Product Manager, Equity Management for
TradeStreet and Senior Portfolio Manager for Nations Equity Income Fund. Mr.
Williams has been Portfolio Manager for Nations Equity Income Fund since 1991.
Prior to assuming his position at TradeStreet, he was Senior Vice President and
Senior Portfolio Manager for the Investment Management Group at NationsBank. He
has worked in the investment community since 1980. His past experience includes
fund analysis and portfolio management for National Bank of Detroit. Mr.
Williams received a B.S. in Accounting from East Carolina University, Summa Cum
Laude and an M.B.A. from Indiana University. He holds the Chartered Financial
Analyst designation, is on the Advisory Board of Indiana University's Investment
Management Academy, and is a member of the Association for Investment Management
and Research as well as the North Carolina Society of Financial Analysts, Inc.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements, 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 federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, 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.
21
<PAGE>
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of Nations Fund pursuant to
Co-Administration Agreements. Under the Co-Administration Agreements, First Data
provides various administrative and accounting services to the Funds including
performing the calculations necessary to determine the net asset value per share
and dividends of each class of shares of the Funds, preparing tax returns and
financial statements and maintaining the portfolio records and certain of the
general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the indicated rates of the
following Funds' average daily net assets: Nations Value Fund, Nations Capital
Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity Fund, and
Nations Balanced Assets Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Equity Income
Fund -- 0.10%.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens which provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay, out
of its own resources, service fees or commissions to selling agents which assist
customers in purchasing Investor N Shares of the Funds. See "Shareholder
Servicing and Distribution Plans."
NationsBank of Texas, N.A. ("NationsBank of Texas" or the "Custodian") serves as
custodian for the assets of each Fund. NationsBank of Texas is located at 1401
Elm Street, Dallas, Texas 75202, and is a wholly owned subsidiary of NationsBank
Corporation. In return for providing custodial services, NationsBank of Texas is
entitled to receive, in addition to out-of-pocket expenses, fees payable monthly
(i) at the rate of 1.25% of 1% of the average daily net assets of each Fund for
which it serves as custodian, (ii) $10.00 per repurchase collateral transaction
by such Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving such Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor N Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Inves-
22
<PAGE>
tor N Shares, are deducted from accrued income before dividends are declared.
These Fund expenses include, but are not limited to: fees paid to the Adviser,
NationsBank, Stephens and First Data; interest; trustees' and directors' fees;
federal and state securities registration and qualification fees; brokerage fees
and commissions; costs of preparing and printing prospectuses for regulatory
purposes and for distribution to existing shareholders; charges of the
Custodians and Transfer Agent; certain insurance premiums; outside auditing and
legal expenses; costs of shareholder reports and shareholder meetings; other
expenses which are not expressly assumed by the Adviser, NationsBank, Stephens
or First Data under their respective agreements with Nations Fund; and any
extraordinary expenses. Investor N Shares may bear certain class specific retail
transfer agency expenses and also bear certain additional shareholder service
and sales support costs. Any general expenses of Nations Fund Trust and/or
Nations Fund, Inc. that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bears to the assets of Nations Fund
Trust and Nations Fund, Inc. or in such other manner as the Board of Trustees or
Board of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. This Prospectus relates only to
the Investor N Shares of the following funds of Nations Fund Trust: Nations
Capital Growth Fund, Nations Emerging Growth Fund, Nations Disciplined Equity
Fund, Nations Value Fund and Nations Balanced Assets Fund. To obtain additional
information regarding the Funds' other classes of shares which may be available
to you, contact your Selling Agent (as defined below) or Nations Fund at
1-800-321-7854.
Each share in Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates pos-
23
<PAGE>
sessed or shared power to dispose or vote as of a certain date, see Nations Fund
Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor N Shares of Nations Equity Income Fund of Nations Fund, Inc. To obtain
additional information regarding the Fund's other classes of shares which may be
available to you, contact your Selling Agent (as defined below) or Nations Fund
at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the SAI of Nations Fund, Inc. It is anticipated that
Nations Fund, Inc. will not hold annual shareholder meetings on a regular basis
unless required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company, Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
24
<PAGE>
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor N Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into sales support agreements
("Sales Support Agreements") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retirement Accounts
("SAR-IRAs"). However, the assets of such plans must reach an asset value of
$1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of the account
open date. If the assets of such plans do not reach the minimum asset size
within one year, Nations Fund reserves the right to redeem the shares held by
such plans on 60 days' written notice. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor N Shares are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
whereby they will provide various sales support services to their customers
("Customers") who own Investor N Shares. In addition, banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into shareholder servicing agreements ("Servicing Agreements") with
Nations Fund ("Servicing Agents") will provide various shareholder services for
their Customers who own Investor N Shares. Servicing Agents and Selling Agents
are sometimes referred to hereafter as "Agents." From time to time the Agents,
Stephens and Nations Fund may agree to voluntarily reduce the maximum fees
payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor N Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor N Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Selling Agent placing the order. Payment for orders which
are not received or accepted will be returned after prompt inquiry to the
sending Selling Agent.
25
<PAGE>
The Selling Agents are responsible for transmitting orders for purchases of
Investor N Shares by their Customers, and delivering required funds, on a timely
basis. Stephens is responsible for transmitting orders it receives to Nations
Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor N Shares. On a bi-monthly,
monthly or quarterly basis, shareholders may direct cash to be transferred
automatically from their checking or savings account at any bank to their Fund
account. Transfers will occur on or about the 15th and/or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Selling
Agent.
REINVESTMENT PRIVILEGE: Within 120 days after a redemption of Investor N Shares
of a Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor N Shares of the same Fund at the net asset value next
determined after a reinvestment request is received by the Transfer Agent,
together with the proceeds. A shareholder exercising this privilege would
receive a pro-rata credit for any CDSC paid in connection with the redemption. A
shareholder may not exercise this privilege with the proceeds of a redemption of
shares purchased through the reinvestment privilege.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires the telephone transaction
feature after opening an account, a signature guarantee will be required.
Shareholders should be aware that by using the telephone transaction feature,
such shareholders may be giving up a measure of security that they may have if
they were to request such transactions in writing. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
Shareholder Servicing And
Distribution Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided to
their Customers that own Investor N Shares. Payments under the Servicing Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by the Funds, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor N Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor N Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor N
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodi-
26
<PAGE>
cally to Customers showing their positions in Investor N Shares; (v) arranging
for bank wires; and (vi) providing general shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and
Directors have approved a Distribution Plan with respect to Investor N Shares of
the Funds. Pursuant to the Distribution Plan, the Funds may compensate or
reimburse Stephens for any activities or expenses primarily intended to result
in the sale of the Funds' Investor N Shares. Payments under the Distribution
Plan will be calculated daily and paid monthly at a rate or rates set from time
to time by the Trustees and Directors provided that the annual rate may not
exceed 0.75% of the average daily net asset value of the Funds' Investor N
Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing and
distributing prospectuses, sales literature and advertising materials,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or the Selling Agents;
overhead and other office expenses; opportunity costs relating to the foregoing;
and any other costs and expenses relating to distribution or sales support
activities. The overhead and other office expenses referenced above may include,
without limitation, (i) the expenses of operating Stephens' or the Selling
Agents' offices in connection with the sale of Fund shares, including rent, the
salaries and employee benefit costs of administrative, operations and support
personnel, utility costs, communications costs and the costs of stationery and
supplies, (ii) the costs of client sales seminars and travel related to
distribution and sales support activities, and (iii) other expenses relating to
distribution and sales support activities.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreements
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Agents may charge fees to their Customers who are
the owners of Investor N Shares for various services provided in connection with
a Customer's account. These fees would be in addition to any amounts received by
a Selling Agent under its Sales Support Agreement with Stephens or by a
Servicing Agent under its Servicing Agreement with Nations Fund. The Sales
Support Agreements and Servicing Agreements require Agents to disclose to their
Customers any compensation payable to the Agent by Stephens or Nations Fund and
any other compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
27
<PAGE>
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent, less any applicable
CDSC. The Selling Agents are responsible for transmitting redemption orders to
Stephens or to the Transfer Agent and for crediting their Customers' accounts
with the redemption proceeds on a timely basis. No charge for wiring redemption
payments is imposed by Nations Fund. Except for any CDSC which may be applicable
upon redemption of Investor N Shares, as described below, there is no redemption
charge.
Redemption proceeds are normally wired to the redeeming Selling Agent within
three Business Days after receipt of the order by Stephens or by the Transfer
Agent. However, redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately.
Nations Fund may redeem a shareholder's Investor N Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of the Funds involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor N Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor N Shares purchased prior to January 1, 1996, may be subject a CDSC if
such shares are redeemed within six years of the date of purchase. No CDSC is
imposed on increases in net asset value above the initial purchase price,
including shares acquired by reinvestment of distributions. Subject to the
exclusions described below, the amount of the CDSC is determined as a percentage
of the lesser of the net asset value or the purchase price of the shares being
redeemed. The amount of the CDSC will depend on the number of years since you
invested, according to the following table:
<TABLE>
<CAPTION>
<S> <C>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Funds will first
redeem shares not subject to any charge, and then shares held longest during the
six year period. This will result in you paying the lowest possible CDSC. Solely
for purposes of determining the number of years from the date of purchase of
shares, all purchases are deemed to have been made on the trade date of the
transaction.
The CDSC will be waived on redemptions of Investor N Shares (i) following the
death or dis-
28
<PAGE>
ability (as defined in the Internal Revenue Code of 1986, as amended (the
"Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an IRA or Custodial
Account under Section 403(b)(7) of the Code following attainment of age 59 1/2;
(c) a tax-free return of an excess contribution to an IRA; and (d) distributions
from a qualified retirement plan that are not subject to the 10% additional
Federal withdrawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected
pursuant to Nations Fund's right to liquidate a shareholder's account, including
instances where the aggregate net asset value of the Investor N shares held in
the account is less than the minimum account size, (iv) in connection with the
combination of Nations Fund with any other registered investment company by a
merger, acquisition of assets or by any other transaction, and (v) effected
pursuant to the Automatic Withdrawal Plan discussed below, provided that such
redemptions do not exceed, on an annual basis, 12% of the net asset value of the
Investor N Shares in the account. In addition, the CDSC will be waived on
Investor N Shares purchased before September 30, 1994 by current or retired
employees of NationsBank and its affiliates or by current or former Trustees or
Directors of Nations Fund or other management companies managed by NationsBank.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the plan adopted pursuant to Rule 12b-1 under the 1940
Act, pay a bonus or other consideration or incentive to Agents who sell a
minimum dollar amount of shares of the Funds during a specified period of time.
Stephens also may, from time to time, pay additional consideration to Agents not
to exceed 0.75% of the offering price per share on all sales of Investor N
Shares as an expense of Stephens or for which Stephens may be reimbursed under
the plan adopted pursuant to Rule 12b-1 or upon receipt of a CDSC. Any such
additional consideration or incentive program may be terminated at any time by
Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor N Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor N Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor N Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor N Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. An AWP may be terminated by a shareholder on 30 days' written notice
to his/her Selling Agent or by Nations Fund at any time.
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How To Exchange Shares
The exchange feature enables a shareholder to exchange funds as specified below
when the shareholder believes that a shift between funds is an appropriate
investment decision. The exchange feature enables a shareholder of Investor N
Shares of a fund offered by Nations Fund to acquire shares of the same class
that are offered by any other fund of Nations Fund (except Nations Short-Term
Income Fund and Nations Short-Term Municipal Income Fund), Investor A Shares of
the Nations Short-Term Income Fund or Nations Short-Term Municipal Income Fund,
or Investor C Shares of a Nations Fund money market fund. A qualifying exchange
is based on the next calculated net asset value per share of each fund after the
exchange order is received.
No CDSC will be imposed in connection with an exchange of Investor N Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor N Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996) to the
original shares purchased will be applied to any redemption of the acquired
shares. If a shareholder exchanges Investor N Shares of a fund for Investor C
Shares of a money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund, the acquired shares will
remain subject to the CDSC schedule applicable to the Investor N Shares
exchanged. The holding period (for purposes of determining the applicable rate
of the CDSC) does not accrue while the shares owned are Investor C Shares of a
Nations Fund money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund. As a result, the CDSC that is
ultimately charged upon a redemption is based upon the total holding period of
Investor N Shares of a fund that charges a CDSC.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor N Shares exchanged must have a current value of at least $1,000.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange. An investor may telephone an exchange request by
calling the investor's Selling Agent which is responsible for transmitting such
request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
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How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: The Funds distribute any net investment income each
calendar quarter and any net realized capital gains (including net short-term
capital gains) at least annually. Distributions from capital gains are made
after applying any available capital loss carryovers. Distributions paid by the
Funds with respect to one class of shares may be greater or less than those paid
with respect to another class of shares due to the different expenses of the
different classes.
The net asset value of Investor N Shares will be reduced by the amount of any
dividend or distribution. Certain Selling Agents may provide for the
reinvestment of dividends in the form of additional Investor N Shares of the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the quarter to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor N Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Funds of liability for
Federal income taxes on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gains) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not
currently exempt from Federal income taxes, whether such income is received in
cash or reinvested in additional shares. (Federal income taxes for distributions
to an IRA are generally deferred under the Code.)
Corporate investors in the Funds may be entitled to the dividends received
deduction on all or a portion of such Funds' dividends paid by these Funds to
the extent that a Fund's income is derived from dividends (which, if received
directly, would qualify for such deduction) received from domestic corporations.
In order to qualify for the dividends-received deduction, a corporate
shareholder must hold the fund shares paying the dividends upon which the
deduction is based for at least 46 days.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who
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are not exempt from Federal income taxes as long-term capital gains, regardless
of how long the shareholders have held the Funds' shares and whether such gains
are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year. Such dividends
and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage- and non-mortgage-backed securities.
Interests in pools of these assets 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. Instead, asset-backed
securities provide periodic payments which generally consist of both interest
and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself.
Mortgage-backed securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), parallel pay CMOs, planned
amortization class CMOs ("PAC Bonds") and stripped mortgage-backed securities
("SMBS"), including interest-only and principal-only SMBS. SMBS may be more
volatile than other debt securities. For additional information concerning
mortgage-backed securities, see the related SAI.
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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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Funds will limit their investments
in bank obligations so they do not exceed 25% of each Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
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
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repurchase the securities. In addition, there is a risk of delay in receiving
collateral or securities or in repurchasing the securities covered by the
reverse repurchase agreement or even of a loss of rights in the collateral or
securities in the event the buyer of the securities under the reverse repurchase
agreement files for bankruptcy or becomes insolvent. The Fund only enters into
reverse repurchase agreements (and repurchase agreements) with counterparties
that are deemed by the Adviser to be credit worthy. Reverse repurchase
agreements are speculative techniques involving leverage, and are subject to
asset coverage requirements if the Funds do not establish and maintain a
segregated account as described above. 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks. Investments by a Fund in commercial
paper will consist of issues rated in a manner consistent with such Fund's
investment policies and objective. In addition, a Fund may acquire unrated
commercial paper and corporate bonds that are determined by the Adviser at the
time of purchase to be of comparable quality to rated instruments that may be
acquired by a Fund. Commercial instruments include variable-rate master demand
notes, which are unsecured instruments that permit the indebtedness thereunder
to vary and provide for periodic adjustments in the interest rate, and variable-
and floating-rate instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
United States Dollar. A Fund either enters into these transactions on a spot
(I.E., cash) basis at the spot rate prevailing in the foreign currency exchange
market, or uses forward contracts to purchase or sell foreign currencies. A
forward foreign currency exchange contract is an obligation by a Fund to
purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract.
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A Fund will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the executive of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
for-
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ward contracts and movements in the prices of the securities or currencies being
hedged; the possible absence of a liquid secondary market for any particular
instrument at any time; and the possible need to defer closing out certain
hedged positions to avoid adverse tax consequences. A Fund may not purchase put
and call options which are traded on a national stock exchange in an amount
exceeding 5% of its net assets. Further information on the use of futures,
options and other derivative instruments, and the associated risks, is contained
in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities, are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities which are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by the Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Nations Equity Income Fund may invest in
lower-rated debt securities. Lower rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing.
The market for lower-rated securities may be thinner and less active than that
for higher qual-
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ity securities, which can adversely affect the price at which these securities
can be sold. If market quotations are not available, these lower-rated
securities will be valued in accordance with procedures established by the
Funds' Boards, including the use of outside pricing services. Adverse publicity
and changing investor perceptions may affect the ability of outside pricing
services used by a Fund to value its portfolio securities, and a Fund's ability
to dispose of these lower-rated bonds.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: 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.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax-exempt leases. 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. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. 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.
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
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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.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
Although the Funds do not presently intend to do so on a regular basis, a Fund
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.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
REAL ESTATE INVESTMENT TRUSTS: A real estate investment trust ("REIT") is a
managed portfolio of real estate investments which may include office buildings,
apartment complexes, hotels and shopping malls. An Equity REIT holds equity
positions in real estate, and it seeks to provide its shareholders with income
from the leasing of its properties, and with capital gains from any sales of
properties. A Mortgage REIT specializes in lending money to developers of
properties, and passes any interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying property owned
or financed by the REIT, while Mortgage REITs also may be affected by the
quality of credit extended. Both Equity and Mortgage REITs are dependent upon
management skill and may not be diversified. REITs also may be subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free pass-through of income under the
Code.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
idle cash. A risk associated with repurchase agreements is the failure of the
seller to repurchase the securities as agreed, which may cause a Fund to suffer
a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
38
<PAGE>
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: Certain of the Funds
may purchase and sell futures contracts and related options with respect to
non-U.S. stock indices, non-U.S. interest rates and foreign currencies, that
have been approved by the CFTC for investment by U.S. investors, for the purpose
of hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government Obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government Obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
39
<PAGE>
Appendix B -- Description of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
40
<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 well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to
41
<PAGE>
show relative standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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
42
<PAGE>
more affected by external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
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 three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in busi-
43
<PAGE>
ness, 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:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
44
<PAGE>
Prospectus
INVESTOR N SHARES
JULY 31, 1996
This Prospectus describes NATIONS SHORT-TERM INCOME
FUND, NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND,
NATIONS GOVERNMENT SECURITIES FUND, NATIONS
STRATEGIC FIXED INCOME FUND AND NATIONS DIVERSIFIED
INCOME FUND (the "Funds") of Nations Fund Trust and
Nations Fund, Inc., each an open-end management
investment company in the Nations Fund Family
("Nations Fund" or "Nations Fund Family"). This
Prospectus describes one class of shares of the
Funds -- Investor N Shares.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor N Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc. is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs for Nations Fund Trust and
Nations Fund, Inc., each dated July 31, 1996, are
incorporated by reference in their entirety into
this Prospectus. NationsBanc Advisors, Inc.
("NBAI") is the investment adviser to the Funds.
TradeStreet Investment Associates, Inc.
("TradeStreet") is sub-investment adviser to the
Funds. As used herein the "Adviser" shall mean NBAI
and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations
Short-Term
Income Fund
Nations Short-Intermediate
Government Fund
Nations Government
Securities Fund
Nations
Strategic Fixed
Income Fund
Nations Diversified
Income Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND logo
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 5
Financial Highlights 7
Objectives 11
How Objectives Are Pursued 12
How Performance Is Shown 16
How The Funds Are Managed 17
Organization And History 21
About Your Investment
How To Buy Shares 22
Shareholder Servicing And Distribution Plans 24
How To Redeem Shares 25
How To Exchange Shares 28
How The Funds Value Their Shares 29
How Dividends And Distributions Are Made;
Tax Information 29
Appendix A -- Portfolio Securities 30
Appendix B -- Description Of Ratings 40
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUNDS' SAI INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Short-Intermediate Government Fund's investment
objective is to seek current income consistent with modest
fluctuation of principal. The Fund will invest primarily in
securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities.
(Bullet) Nations Government Securities Fund's investment
objective is to seek current income by investing
primarily in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
(Bullet) Nations Short-Term Income Fund's investment objective is
to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term
investment grade fixed income securities.
(Bullet) Nations Diversified Income Fund's investment objective is
to seek current income consistent with total return by
investing primarily in a diversified portfolio of fixed
income securities.
(Bullet) Nations Strategic Fixed Income Fund's investment
objective is to seek total return by investing
primarily in investment grade fixed income
securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains are distributed at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities, including U.S. Government
Obligations, are subject to interest rate risk, which is the risk that
increases in market interest rates will adversely affect a Fund's
investments in debt securities. The value of a Fund's investments in
debt securities 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 which are not backed by the United States Government are
subject to credit risk, which is the risk that the issuer may not be
able to pay principal and/or interest when due. Certain of the Funds'
investments constitute derivative securities. Certain types of
derivative securities can, under certain circumstances, significantly
increase an investor's exposure to market or other risks. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
3
<PAGE>
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") Investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. See "How To Buy Shares."
4
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor N Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations
Short- Nations
Nations Intermediate Government Nations
Short-Term Government Securities Strategic Fixed
SHAREHOLDER TRANSACTION EXPENSES Income Fund Fund Fund Income Fund
<S> <C> <C> <C> <C>
Sales Load Imposed on Purchases None None None None
Deferred Sales Charge (as a percentage of the
lower of the original purchase price or
redemption proceeds)1 None None None None
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
SHAREHOLDER TRANSACTION EXPENSES Income Fund
<S> <C>
Sales Load Imposed on Purchases None
Deferred Sales Charge (as a percentage of the
lower of the original purchase price or
redemption proceeds)1 None
</TABLE>
ANNUAL FUND OPERATING
EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Short- Nations
Nations Intermediate Government Nations
Short-Term Government Securities Strategic Fixed
Income Fund Fund Fund Income Fund
<S> <C> <C> <C> <C>
Management Fees (After Fee Waivers) .30% .40% .50% .50%
Rule 12b-1 Fees (After Fee Waivers) .10% .35% .40% .40%
Shareholder Servicing Fees .25% .25% .25% .25%
Other Expenses (After Expense Reimbursements) .25% .23% .30% .22%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) .90% 1.23% 1.45% 1.37%
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
Income Fund
<S> <C>
Management Fees (After Fee Waivers) .50%
Rule 12b-1 Fees (After Fee Waivers) .50%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .27%
Total Operating Expenses (After Fee Waivers and
Expense Reimbursements) 1.52%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge, if any, applicable at the time of
purchase. See "How To Redeem Shares -- Contingent Deferred Sales Charge."
EXAMPLES:
An investment of $1,000 would incur the following expenses, assuming (1) a 5%
annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations
Short- Nations
Nations Intermediate Nations Strategic
Short-Term Government Government Fixed
Income Fund Fund Securities Fund Income Fund
<S> <C> <C> <C> <C>
1 Year $ 9 $ 13 $ 15 $ 14
3 Years $ 29 $ 39 $ 46 $ 43
5 Years $ 50 $ 68 $ 79 $ 75
10 Years $ 111 $ 149 $ 174 $ 165
</TABLE>
<TABLE>
<CAPTION>
Nations
Diversified
Income Fund
<S> <C>
1 Year $ 15
3 Years $ 48
5 Years $ 83
10 Years $ 181
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in the
Funds will bear either directly or indirectly. Certain figures contained in the
above table are based on amounts incurred during the Funds' most
5
<PAGE>
recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. Long-term shareholders of the Funds could pay more in sales
charges than the economic equivalent of the maximum front-end sales charges
applicable to mutual funds sold by members of the National Association of
Securities Dealers, Inc. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed." Absent fee waivers and expense
reimbursements, "Management Fees," "Rule 12b-1 Fees" and "Total Operating
Expenses" for the following Funds would have been as follows: Nations Short-Term
Income Fund: .60%, .75% and 1.85%, respectively; Nations Short-Intermediate
Government Fund -- .60%, .75%, and 1.83%, respectively; and Nations Strategic
Fixed Income Fund -- .60%, .75% and 1.82%, respectively. Absent fee waivers and
expense reimbursements, "Management Fees," "Rule 12b-1 Fees," "Other Expenses"
and "Total Operating Expenses" for the following Funds would have been as
follows: Nations Diversified Income Fund -- .60%, .75%, .27% and 1.87%,
respectively; and Nations Government Securities Fund -- .64%, .75%, .30% and
1.94%, respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
6
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust and Nations Fund, Inc. Price
Waterhouse LLP is the independent accountant to Nations Fund Trust and Nations
Fund, Inc. The reports of Price Waterhouse LLP for the most recent fiscal year
of Nations Fund Trust and Nations Fund, Inc. accompany the financial statements
for such periods and are incorporated by reference in the SAIs, which are
available upon request. For more information see "Organization and History."
Shareholders of the Funds will receive unaudited semi-annual reports describing
the Funds' investment operations and annual financial statements audited by the
Funds' independent accountant.
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
<TABLE>
<CAPTION>
NATIONS SHORT-TERM INCOME FUND
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b)# 11/30/95# 11/30/94# 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.84 $ 9.48 $ 10.01 $ 9.94
Net investment income 0.19 0.57 0.47 0.22
Net realized and unrealized gain/(loss) on investments (0.08) 0.36 (0.51) 0.07
Net increase/(decrease) in net asset value from operations 0.11 0.93 (0.04) 0.29
Distributions:
Dividends from net investment income (0.19) (0.57) (0.45) (0.22)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from capital -- -- (0.02) --
Total dividends and distributions (0.19) (0.57) (0.49) (0.22)
Net asset value, end of period $ 9.76 $ 9.84 $ 9.48 $ 10.01
Total return++ 1.08% 10.10% (0.46)% 2.96%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 7,339 $ 8,873 $ 16,550 $ 39,861
Ratio of operating expenses to average net assets 0.90%+ 0.91% 0.85% 0.72%+
Ratio of net investment income to average net assets 5.72%+ 5.97% 4.88% 4.92%+
Portfolio turnover rate 73% 224% 293% 121%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.23%+ 1.21% 1.17% 1.14%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.18 $ 0.54 $ 0.44 $ 0.21
</TABLE>
* Nations Short-Term Income Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b)# 11/30/95# 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 4.14 $ 3.93 $ 4.28 $ 4.26
Net investment income 0.07 0.21 0.20 0.09
Net realized and unrealized gain/(loss) on investments (0.07) 0.21 (0.33) 0.02
Net increase/(decrease) in net asset value from
operations 0.00 0.42 (0.13) 0.11
Distributions:
Dividends from net investment income (0.07) (0.21) (0.20) (0.09)
Distributions in excess of net investment income (0.00)(a) (0.00)(a) (0.00)(a) --
Distributions from net realized capital gains -- -- (0.02) --
Total dividends and distributions (0.07) (0.21) (0.22) (0.09)
Net asset value, end of period $ 4.07 $ 4.14 $ 3.93 $ 4.28
Total return++ (0.13)% 11.02% (2.81)% 2.65%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13,789 $ 14,893 $ 10,974 $ 8,847
Ratio of operating expenses to average net assets 1.23%+ 1.20% 1.19% 1.15%+
Ratio of net investment income to average net assets 4.72%+ 5.28% 5.16% 4.80%+
Portfolio turnover rate 189% 328% 133% 92%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.46%+ 1.40% 1.40% 1.39%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.06 $ 0.20 $ 0.19 $ 0.09
</TABLE>
* Nations Short-Intermediate Government Fund Investor N Shares commenced
operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately represents the per share data for the period
since use of the undistributed income method did not accord with the results
of operations.
(a) Value represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
8
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT SECURITIES FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b)# 05/31/95# 05/31/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.86 $ 9.80 $ 10.49
Net investment income 0.47 0.58 0.54
Net realized and unrealized gain/(loss) on investments (0.19) 0.06 (0.64)
Net increase/(decrease) in net asset value from operations 0.28 0.64 (0.10)
Distributions:
Dividends from net investment income (0.45) (0.54) (0.49)
Dividends in excess of net investment income (0.02) -- (0.01)
Distributions from net realized capital gains -- -- --
Distributions in excess of net realized capital gains -- -- (0.05)
Distributions from capital -- (0.04) (0.04)
Total dividends and distributions (0.47) (0.58) (0.59)
Net asset value, end of period $ 9.67 $ 9.86 $ 9.80
Total return++ 2.85% 6.86% (1.09)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 50,958 $ 56,155 $ 56,313
Ratio of operating expenses to average net assets 1.45%+ 1.41% 1.38%+
Ratio of net investment income to average net assets 5.71%+ 6.04% 5.43%+
Portfolio turnover rate 199% 413% 56%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.60%+ 1.59% 1.59%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.46 $ 0.56 $ 0.52
</TABLE>
* Nations Government Securities Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charge.
# Per Share numbers have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
9
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS STRATEGIC FIXED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(a) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.22 $ 9.32 $ 10.55 $ 10.39
Net investment income 0.16 0.53 0.47 0.21
Net realized and unrealized gain/(loss) on investments (0.29) 0.90 (0.89) 0.17
Net increase/(decrease) in net asset value from operations (0.13) 1.43 (0.42) 0.38
Distributions:
Dividends from net investment income (0.16) (0.53) (0.45) (0.21)
Distributions in excess of net investment income -- -- (0.02) --
Distributions from net realized capital gains -- -- (0.34) (0.01)
Total dividends and distributions (0.16) (0.53) (0.81) (0.22)
Net asset value, end of period $ 9.93 $ 10.22 $ 9.32 $ 10.55
Total return++ (1.26)% 15.70% (4.21)% 3.64%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,496 $ 2,578 $ 2,145 $ 1,620
Ratio of operating expenses to average net assets 1.37%+ 1.36% 1.33% 1.26%+
Ratio of net investment income to average net assets 4.84%+ 5.40% 4.78% 4.75%+
Portfolio turnover rate 133% 228% 307% 161%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.48%+ 1.46% 1.41% 1.42%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.16 $ 0.52 $ 0.46 $ 0.21
</TABLE>
* Nations Strategic Fixed Income Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
10
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS DIVERSIFIED INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94# 11/30/93#*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.82 $ 9.67 $ 10.88 $ 10.59
Net investment income 0.21 0.66 0.67 0.30
Net realized and unrealized gain/(loss) on investments (0.40) 1.15 (1.06) 0.29
Net increase/(decrease) in net asset value from operations (0.19) 1.81 (0.39) 0.59
Distributions:
Dividends from net investment income (0.21) (0.66) (0.67) (0.30)
Distributions in excess of net investment income -- -- (0.00)(a) --
Distributions from net realized capital gains -- -- (0.15) --
Total dividends and distributions (0.21) (0.66) (0.82) (0.30)
Net asset value, end of period $ 10.42 $ 10.82 $ 9.67 $ 10.88
Total return++ (1.83)% 19.22% (3.77)% 5.58%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 84,692 $ 90,887 $ 55,058 $ 24,630
Ratio of operating expenses to average net assets 1.52%+ 1.55% 1.49% 1.30%+
Ratio of net investment income to average net assets 5.74%+ 6.28% 6.56% 6.27%+
Portfolio turnover rate 69% 96% 144% 86%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.62%+ 1.68% 1.70% 1.70%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.21 $ 0.65 $ 0.65 $ 0.27
</TABLE>
* Nations Diversified Income Fund Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Per share numbers have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed income method did not accord with the
results of operations.
(a) Amount represents less than $0.01.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS SHORT-TERM INCOME FUND: Nations Short-Term Income Fund's investment
objective is to seek current income consistent with minimal fluctuation of
principal. The Fund invests primarily in short-term investment grade fixed
income securities.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: Nations Short-Intermediate
Government Fund's investment objective is to seek current income consistent with
modest fluctuation of principal. The Fund will invest primarily in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities.
NATIONS GOVERNMENT SECURITIES FUND: Nations Government Securities Fund's
investment objective is to seek current income by investing primarily in
securities issued or guar-
11
<PAGE>
anteed by the U.S. Government, its agencies or instrumentalities.
NATIONS STRATEGIC FIXED INCOME FUND: Nations Strategic Fixed Income Fund's
investment objective is to seek total return by investing primarily in
investment grade fixed income securities. The Fund may invest in long-term,
intermediate-term and short-term securities.
NATIONS DIVERSIFIED INCOME FUND: Nations Diversified Income Fund's investment
objective is to seek current income consistent with total return by investing
primarily in a diversified portfolio of fixed income securities.
How Objectives Are Pursued
NATIONS SHORT-TERM INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity and duration of the Fund's portfolio will not exceed three
years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade by one
of the following six nationally recognized statistical rating organizations,
Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors Service, Inc.
("Fitch"), Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), IBCA Limited or its affiliate, IBCA Inc. (collectively,
"IBCA") or Thomson BankWatch, Inc. ("BankWatch") (collectively, "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 and mortgage-related
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, collateralized mortgage obligations or "CMOs", real
estate investment trust securities or mortgage-backed bonds; other asset-backed
and municipal securities rated by one of the six NRSROs, or, if not so rated,
determined by the Adviser to be of comparable quality to instruments so rated.
The Fund also may invest in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. 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. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, prevailing market or economic conditions warrant.
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND: In pursuing its investment
objective, Nations Short-Intermediate Government Fund
12
<PAGE>
invests substantially all of its assets in U.S. Government Obligations and
repurchase agreements relating to such obligations. Under normal market
conditions, it is expected that the average weighted maturity of the Fund's
portfolio will not exceed seven years and the duration will not exceed five
years. U.S. Government Obligations have historically involved little risk of
loss of principal if held to maturity. However, due to fluctuations in interest
rates, the market value of such securities may vary during the period a
shareholder owns shares of the Fund. The value of the Fund's portfolio generally
will vary inversely with changes in prevailing interest rates.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six 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-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six NRSROs, or if not so rated,
determined by the Adviser to be of comparable quality.
NATIONS GOVERNMENT SECURITIES FUND: In pursuing its investment objective,
Nations Government Securities Fund invests at least 65% of its assets in U.S.
Government Obligations. Under normal market conditions, it is expected that the
average weighted maturity of the Fund's portfolio will be greater than four
years and the Fund's duration is expected to be in a range of 3.5 to 6 years.
The Fund also may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six 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-backed securities of governmental issuers or of private
issuers, including mortgage pass-through certificates, CMOs, real estate
investment trust securities or mortgage-backed bonds; other asset-backed and
municipal securities rated by one of the six 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 (I.E., those
within the two highest rating categories or unrated instruments deemed by the
Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportion as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS STRATEGIC FIXED INCOME FUND: In pursuing its investment objective, the
Fund will, under normal market conditions, invest at least 65% of the total
value of its assets in investment grade debt obligations. It is expected that
the average weighted maturity of the Fund's portfolio will be ten years or less
and under no circumstances will it exceed 15 years.
The Fund may invest in corporate convertible and non-convertible debt
obligations, including bonds, notes and debentures rated investment grade at the
time of purchase by one of the six NRSROs, or if not so rated, determined by the
Adviser to be of comparable quality to instruments so rated; U.S. Government
Obligations; dollar-denominated debt obligations of foreign issuers, including
foreign corporations and foreign governments; mortgage-backed securities of
governmental issuers or of private issuers, including mortgage pass-through
certificates, CMOs, real estate investment trust securities or mortgage-backed
bonds; other asset-backed and municipal securities rated by one of the six
NRSROs, or if not so rated, determined by the Adviser to be of comparable
quality. The Fund also may invest in dividend-paying preferred and common stock.
Most obligations acquired by the Fund will be issued by companies or
governmental entities
13
<PAGE>
located within the United States. The Fund may invest up to 25% of its assets in
foreign securities.
As noted above, the Fund will invest in investment grade debt obligations.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations. 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. See "Appendix B" below for a description of
these rating designations.
The Fund also may invest in "high quality" money market instruments (I.E., those
within the two highest rating categories or unrated instruments determined by
the Adviser to be of comparable quality), repurchase agreements and cash. Such
obligations may include those issued by foreign banks and foreign branches of
U.S. banks. These investments may be in such proportions as, in the Adviser's
opinion, existing circumstances warrant.
NATIONS DIVERSIFIED INCOME FUND: In pursuing its investment objective, the Fund
will, under normal market conditions, invest at least 65% of the total value of
its assets in investment grade debt obligations. It is expected that the average
weighted maturity of the Fund's portfolio will be greater than five years.
The Fund may invest in corporate convertible and non-convertible debt
obligations such as fixed- and variable-rate bonds; U.S. Government Obligations;
dollar-denominated and non-dollar-denominated debt obligations of foreign
issuers, including foreign corporations and foreign governments; mortgage-backed
securities of governmental issuers or of private issuers, including mortgage
pass-through certificates, CMOs, real estate investment trust securities or
mortgage-backed bonds; other asset-backed and municipal securities rated by one
of the six NRSROs, or if not so rated, determined by the Adviser to be of
comparable quality. The Fund also may invest in dividend-paying convertible and
non-convertible preferred and common stocks.
Most obligations acquired by the Fund will be issued by companies or
governmental entities located within the United States. The Fund may invest up
to 25% of its assets in foreign securities.
Obligations rated in the lowest of the top four investment grade rating
categories (E.G. rated "BBB" by S&P or "Baa" by Moody's) have speculative
characteristics, and changes in economic conditions or other circumstances are
more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade debt obligations.
Up to 35% of the total value of the Fund's assets may be invested in
lower-quality fixed income securities rated "B" or better by Moody's or S&P, or
if not so rated, determined by the Adviser to be of comparable quality.
Securities which are rated "B" generally lack characteristics of the desirable
investment, and assurance of interest and principal payment over any long period
of time may be limited. Non-investment grade debt securities are sometimes
referred to as "high yield bonds" or "junk bonds." They tend to have speculative
characteristics, generally involve more risk of principal and income than higher
rated securities, and have yields and market values that tend to fluctuate more
than higher quality securities.
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. See "Appendix B" below
for a description of these rating designations.
The Fund may hold or invest in "high quality" money market instruments (I.E.,
those within the two highest rating categories or unrated instruments deemed by
the Adviser to be of comparable quality), repurchase aggreements and cash. Such
obligations may include those issued
14
<PAGE>
by foreign banks and foreign branches of U.S. banks. These investments may be in
such proportions as, in the Adviser's opinion, existing circumstances warrant.
GENERAL: Each of the 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 calls and puts and covered calls to enhance
return; and U.S. and foreign exchange-traded financial futures and options
thereon approved by the Commodity Futures Trading Commission ("CFTC") for market
exposure risk-management. Each of the Funds also may lend its portfolio
securities to qualified institutional investors and may invest in 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 Fund's investment objective and policies.
Certain securities that have variable or floating interest rates or demand, put
or prepayment features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining the average weighted
maturity of the Funds.
For more information concerning these and other instruments in which the Funds
may invest their investment practices, see "Appendix A".
Although changes in the value of securities subsequent to their acquisition are
reflected in the net asset value of the Funds' shares, such changes will not
affect the income received by the Funds from such securities. However, since
available yields vary over time, no specific level of income can ever be
assured. The dividends paid by the Funds will increase or decrease in relation
to the income received by the Funds from their investments, which will in any
case be reduced by the Funds' expenses before being distributed to the Funds'
shareholders.
PORTFOLIO TURNOVER: Generally, the 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 Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the Funds'
investment objectives, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
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.
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.
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 objectives 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund is subject to a number of investment
limitations. The fol-
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lowing investment limitations are matters of fundamental policy and may not be
changed without the affirmative vote of the holders of a majority of the Fund's
outstanding shares. Other investment limitations that cannot be changed without
such a vote of shareholders are described in the SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry, provided that this limitation does not apply to investments in
obligations issued or guaranteed by the U.S. Government or its agencies and
instrumentalities.
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or privately placed),
may enter into repurchase agreements and may lend portfolio securities in
accordance with its investment policies.
3. Each Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of the Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
How Performance Is Shown
From time to time the Funds may advertise the total return and yield on a class
of shares. TOTAL RETURN AND YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE
NOT INTENDED TO INDICATE FUTURE PERFORMANCE. The "total return" of a class of
shares of the Funds may be calculated on an average annual total return basis or
an aggregate total return basis. Average annual total return refers to the
average annual compounded rates of return over one-, five-, and ten-year periods
or the life of the Fund (as stated in the advertisement) that would equate an
initial amount invested at the beginning of a stated period to the ending
redeemable value of the investment (reflecting the deduction of any applicable
contingent deferred sales charge ("CDSC")), assuming the reinvestment of all
dividend and capital gains distributions. Aggregate total return reflects the
total percentage change in the value of the investment over the measuring period
again assuming the reinvestment of all dividends and capital gains
distributions. Total return may also be presented for other periods or may not
reflect a deduction of any applicable CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares by the maximum
public offering price per share on the last day of that period. The yield on a
class of shares does not reflect the deduction of any applicable CDSC.
Investment performance, which will vary, is based on many factors, including
market
condi-
16
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tions, the composition of the Funds' portfolio and the Funds' operating
expenses. Investment performance also often reflects the risks associated with
the Fund's investment objective and policies. These factors should be considered
when comparing a Fund's investment results to those of other mutual funds and
other investment vehicles. Since yields fluctuate, yield data cannot necessarily
be used to compare an investment in the Funds with bank deposits, savings
accounts, and similar investment alternatives which often provide an agreed-upon
or guaranteed fixed yield for a stated period of time.
In addition to Investor N Shares, the Funds offer Primary A, Primary B, Investor
A and Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
the Funds' shares. Any fees charged by a selling agent and/or servicing agent
directly to its customers' accounts in connection with investments in the Funds
will not be included in calculations of total return or yield. The Funds' annual
report contains additional performance information and is available upon request
without charge from the Funds' distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAI contains the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc., through its investment
management division, serves as investment adviser to the Funds. NBAI is a wholly
owned subsidiary of NationsBank, which in turn is a wholly owned banking
subsidiary of NationsBank Corporation, a bank holding company organized as a
North Carolina corporation. NBAI has its principal offices at One NationsBank
Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc. with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. The Adviser is authorized to allocate
purchase and sale orders for portfolio securities to certain financial
institutions, including, in the case of agency transactions, financial
institutions which are affiliated with the Adviser or which have sold shares in
such Funds, if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms. From time to time, to the extent consistent with its investment
objective, policies and restrictions, each Fund may invest
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in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rate of: 0.60% of the average daily net assets
of each of Nations Short-Term Income Fund, Nations Diversified Income Fund,
Nations Stategic Fixed Income Fund and Nations Short-Intermediate Government
Fund; 0.65% of the first $100 million of Nations Government Securities Fund's
average daily net assets, plus 0.55% of the Fund's average daily net assets in
excess of $100 million and up to $250 million, plus 0.50% of the Fund's average
daily net assets in excess of $250 million.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.15% of Nations Short-Intermediate Government
Fund's, Nations Government Securities Fund's, Nations Short-Term Income Fund's,
Nations Strategic Fixed Income Fund's and Nations Diversified Income Fund's
average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Short-Intermediate Government Fund -- 0.37%; Nations Short-Term
Income Fund -- 0.27%; Nations Diversified Income Fund -- 0.50%; and Nations
Strategic Fixed Income Fund -- 0.50%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the rate of 0.48% of the average daily net assets of Nations
Government Securities Fund.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the rate of 0.15% of the average daily net assets of Nations Short-
Intermediate Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income Fund, and Nations
Government Securities Fund.
David M. Hetherington, CFA, is a Director of TradeStreet and Managing Director
of Fixed Income Management. Mr. Hetherington is responsible for overseeing all
fixed income product management and is Senior Portfolio Manager for Nations
Short-Term Income Fund. Mr. Hetherington has been Portfolio Manager for the
Nations Short-Term Income Fund since 1995. Prior to assuming his position with
TradeStreet, he was Senior Vice President and Director of Fixed Income for the
Investment Management Group at NationsBank. Mr. Hetherington has worked in the
investment community since 1975. His past experience includes working as a
portfolio manager, a trust investment officer and a securities analyst for First
Citizens Bank and Deposit Guarantee as well as working as an Economist for the
U.S. Department of Labor in the Bureau of Labor Statistics. Mr. Hetherington
received a B.A. in Economics from Duke University. He holds the Chartered
Financial Analyst designation and is a member of the Association for Investment
Management and Research.
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Mark S. Ahnrud, CFA, is a Director of Fixed Income Management for TradeStreet
and Senior Portfolio Manager for Nations Diversified Income Fund. Mr. Ahnrud has
been Portfolio Manager for Nations Diversified Income Fund since 1992. Prior to
assuming his position with TradeStreet, he was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Ahnrud
has worked for the Investment Management Group at NationsBank since 1985 where
his responsibilities initially included institutional investment management
sales and later involved high yield credit analysis. Mr. Ahnrud received a dual
B.S. in Finance and Investments from Babson College and an M.B.A. from Duke
University, Fuqua School of Business. He holds the Chartered Financial Analyst
designation and is a member of the Association for Investment Management and
Research as well as the North Carolina Society of Financial Analysts, Inc.
Gregory H. Cobb is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Strategic Fixed Income
Fund. Mr. Cobb has been Portfolio Manager for Nations Strategic Fixed Income
Fund since 1995. Prior to assuming his position with TradeStreet, he was Vice
President and Senior Portfolio Manager for the Investment Management Group at
NationsBank. Mr. Cobb has worked in the investment community since 1987. His
past experience includes portfolio management of intermediate duration and
insurance products for Trust Company Bank and Barnett Bank Trust Company, Inc.
Mr. Cobb received a B.A. in Economics from the University of North Carolina at
Chapel Hill.
John S. Swaim is a Senior Product Manager, Fixed Income Management for
TradeStreet and Senior Portfolio Manager for Nations Short-Intermediate
Government Fund and Nations Government Securities Fund. Mr. Swaim has been
Portfolio Manager for the Funds since 1995. Prior to assuming his position with
TradeStreet, he was Vice President and Senior Portfolio Manager for the
Investment Management Group at NationsBank. Mr. Swaim has worked in the
investment community since 1986. His past experience includes derivative
products manager for the NationsBank Texas Corporate Investment Division
portfolio. Mr. Swaim received a B.S. from University of North Texas and an
M.B.A. from University of Texas at Arlington.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank has advised NationsBank and Nations Fund that NationsBank and its
affiliates may perform the services contemplated by the various Investment
Advisory Agreements 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 federal or state statutes, including the
Glass-Steagall Act, and regulations and judicial or administrative decisions or
interpretations thereof, 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.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pur-
19
<PAGE>
suant to a Co-Administration Agreement. Under the Co-Administration Agreement,
First Data provides various administrative and accounting services to the Funds
including performing the calculations necessary to determine the net asset value
per share and dividends of each class of shares of the Funds, preparing tax
returns and financial statements and maintaining the portfolio records and
certain of the general accounting records for the Funds.
For the services rendered pursuant to the Administration and Co-Administration
Agreements, Stephens and First Data are entitled to receive a combined fee at
the annual rate of up to 0.10% of each Fund's average daily net assets. For the
fiscal period from December 1, 1995 to March 31, 1996, after waivers, Nations
Fund Trust paid its administrators combined fees at the rate of 0.10% of the
following Funds' average daily net assets: Nations Short-Intermediate Government
Fund, Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the rate of 0.10% of
the average daily net assets of Nations Government Securities Fund.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of .01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor N Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas N.A., ("NationsBank of Texas" or the "Custodian") serves as
the Funds' custodian. NationsBank of Texas is located at 1401 Elm Street,
Dallas, Texas 75202 and is a wholly owned subsidiary of NationsBank Corporation.
In return for providing custodial services, NationsBank of Texas is entitled to
receive, in addition to out-of-pocket expenses, fees payable monthly (i) at the
rate of 1.25% of 1% of the average daily net assets of the Funds, (ii) $10.00
per repurchase collateral transaction by the Funds, and (iii) $15.00 per
purchase, sale and maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor N Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountants to Nations Fund. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of the Funds, as well as certain expenses
attributable to Investor N Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data interest;
trustees' and directors' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor N Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and sales support costs. Any general expenses of
Nations Fund Trust and/or
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Nations Fund, Inc. that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bear to the assets of Nations Fund
Trust or Nations Fund, Inc. or in such other manner as the Board of Trustees or
the Boards of Directors deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer five classes of shares -- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares. This Prospectus relates only to
the Investor N Shares of Nations Short-Term Income Fund, Nations Diversified
Income Fund, Nations Strategic Fixed Income Fund and Nations Short-Intermediate
Government Fund of Nations Fund Trust. To obtain additional information
regarding the Funds' other classes of shares which may be available to you,
contact your Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the related SAI for examples of when the
Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or funds each of which
consists of separate classes of shares. This Prospectus relates only to the
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<PAGE>
Investor N Shares of Nations Government Securities Fund of Nations Fund, Inc. To
obtain additional information regarding the Fund's other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of the outstanding shares of Nations Fund, Inc.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see the Nations Fund, Inc. SAI. It is anticipated that
Nations Fund, Inc. will not hold annual shareholder meetings on a regular basis
unless required by the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company could become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor N Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into sales support agreements
("Sales Support Agreements") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual Retire-
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ment Accounts ("SAR-IRAs"). However, the assets of such plans must reach an
asset value of $1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs, within one year of
the account open date. If the assets of such plans do not reach the minimum
asset size within one year, Nations Fund reserves the right to redeem the shares
held by such plans on 60 days' written notice. The minimum subsequent investment
is $100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor N Shares are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
whereby they will provide various sales support services to their customers
("Customers") who own Investor N Shares. In addition, banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into shareholder servicing agreements ("Servicing Agreements") with
Nations Fund ("Servicing Agents") will provide various shareholder services for
their Customers who own Investor N Shares. Servicing Agents and Selling Agents
are sometimes referred to hereafter as "Agents." From time to time the Agents,
Stephens and Nations Fund may agree to voluntarily reduce the maximum fees
payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor N Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor N Shares of the Funds
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Selling Agent placing the order. Payment for orders which
are not received or accepted will be returned after prompt inquiry to the
sending Selling Agent.
The Selling Agents are responsible for transmitting orders for purchases of
Investor N Shares by their Customers, and delivering required funds, on a timely
basis. Stephens is responsible for transmitting orders it receives to Nations
Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
shareholders may automatically purchase Investor N Shares. On a bi-monthly or
quarterly basis, shareholders may direct cash to be transferred automatically
from their checking or savings account at any bank to their Fund account.
Transfers will occur on or about the 15th and/or 30th day of the applicable
month. The systematic investment amount may be in any amount from $25 to
$100,000. For more information concerning the SIP, contact your Selling Agent.
REINVESTMENT PRIVILEGE: Within 120 days after a redemption of Investor N Shares
of a Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor N Shares of the same Fund at the net asset value next
determined after a reinvestment request is received by the Transfer Agent,
together with the proceeds. A shareholder exercising this privilege would
receive a pro-rata credit for any CDSC paid in connection with the redemption. A
shareholder may not exercise this privilege with the proceeds of a redemption of
shares previously purchased through the reinvestment privilege.
TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
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transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
Shareholder Servicing And Distribution
Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits the Funds to compensate Servicing Agents for services provided to
their Customers that own Investor N Shares. Payments under the Servicing Plan
are calculated daily and paid monthly at a rate or rates set from time to time
by the Funds, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor N Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor N Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor N
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from the Funds on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor N Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Servicing Plan
described above and the terms of the Servicing Agreements. See the relevant SAI
for more details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees of
Nations Fund Trust and the Directors of Nations Fund, Inc. have approved a
Distribution Plan with respect to Investor N Shares of the Funds. Pursuant to
the Distribution Plan, the Funds may compensate or reimburse Stephens for any
activities or expenses primarily intended to result in the sale of the Funds'
Investor N Shares. Payments under the Distribution Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Trustees or
Directors provided that the annual rate may not exceed 0.75% of the average
daily net asset value of the Funds' Investor N Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing and
dis-
24
<PAGE>
tributing prospectuses, sales literature and advertising materials; commissions,
incentive compensation or other compensation to, and expenses of, account
executives or other employees of Stephens or Selling Agents; overhead and other
office expenses; opportunity costs relating to the foregoing; and any other
costs and expenses relating to distribution or sales support activities. The
overhead and other office expenses referenced above may include, without
limitation, (i) the expenses of operating Stephens' or the Selling Agents'
offices in connection with the sale of Fund shares, including rent, the salaries
and employee benefit costs of administrative, operations and support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(ii) the costs of client sales seminars and travel related to distribution and
sales support activities, and (iii) other expenses relating to distribution and
sales support activities.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Agents may charge fees to their Customers who own
Investor N Shares for various services provided in connection with a Customer's
account. These fees would be in addition to any amounts received by a Selling
Agent under its Sales Support Agreement with Stephens or by a Servicing Agent
under its Servicing Agreement with Nations Fund. The Sales Support Agreements
and Servicing Agreements require Agents to disclose to their Customers any
compensation payable to the Agent by Stephens or Nations Fund and any other
compensation payable by the Customers for various services provided in
connection with their accounts. Customers should read this Prospectus in light
of the terms governing their accounts with their Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent. The Selling Agents
are responsible for transmitting redemption orders to Stephens or to the
Transfer Agent and for crediting a Customers' accounts with the redemption
proceeds on a timely basis. Except for any CDSC which may be applicable upon the
redemption of Investor N Shares, as described below, there is no redemption
charge. No charge for wiring redemption payments is imposed by Nations Fund.
Redemption proceeds are normally wired to the redeeming Selling Agent within
three Business Days after receipt of the order by Stephens or by the Transfer
Agent. However, redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately.
Nations Fund may redeem a shareholder's Investor N Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of the Funds involuntarily or
make payment for redemption in readily marketable securities or other property
under certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor N Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or
25
<PAGE>
accompanied by a signed stock power, in each instance with the signature
guaranteed by a commercial bank or a member of a major stock exchange, unless
other arrangements satisfactory to Nations Fund have previously been made.
Nations Fund may require any additional information reasonably necessary to
evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor N Shares purchased prior to January 1, 1996 may be subject to a CSDC if
such shares of each such Fund (other than Nations Short-Term Income Fund) are
redeemed within six years of the date of purchase. No CDSC is imposed on
increases in net asset value above the initial purchase price, including shares
acquired by reinvestment of distributions. Subject to the exclusions described
below, the amount of the CDSC is determined as a percentage of the lesser of the
net asset value or the purchase price of the shares being redeemed. The amount
of the CDSC on shares of Nations Diversified Income Fund, Nations Strategic
Fixed Income Fund and Nations Government Securities Fund will depend on the
number of years since you invested, according to the following table:
<TABLE>
<CAPTION>
<S> <C>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Year Since Purchase Amount Subject to Charge
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
The amount of CDSC on shares of Nations Short-Intermediate Government Fund will
depend on the number of years since you invested, according to the following
table:
<TABLE>
<CAPTION>
<S> <C>
Contingent Deferred
Sales Charge as a
Percentage of Dollar
Year Since Purchase Made Amount Subject to Charge
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, the Fund will first
redeem shares not subject to any charge, and then shares held the longest during
the six year period. This will result in you paying the lowest possible CDSC.
Solely for purposes of determining the number of years from the date of purchase
of shares, all purchases are deemed to have been made on the trade date of the
transaction.
The CDSC will be waived on redemptions of Investor N Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986, as amended
(the "Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) lump-sum or
other distributions from a qualified corporate or self-employed retirement plan
following retirement (or in the case of a "key employee" of a "top heavy" plan,
following attainment of age 59 1/2); (b) distributions from an IRA or Custodial
Account under Section 403(b)(7) of the Code following attainment of age 59 1/2;
(c) a tax-free return of an excess contribution to an IRA; and (d) distributions
from a qualified retirement plan that are not subject to the 10% additional
Federal with-
26
<PAGE>
drawal tax pursuant to Section 72(t)(2) of the Code, (iii) effected pursuant to
Nations Fund's right to liquidate a shareholder's account, including instances
where the aggregate net asset value of the Investor N Shares held in the account
is less than the minimum account size, (iv) in connection with the combination
of Nations Fund with any other registered investment company by a merger,
acquisition of assets or by any other transaction, and (v) effected pursuant to
the Automatic Withdrawal Plan discussed below, provided that such redemptions do
not exceed, on an annual basis, 12% of the net asset value of the Investor N
Shares in the account. In addition, the CDSC will be waived on Investor N Shares
purchased before September 30, 1994 by current or retired employees of
NationsBank and its affiliates or by current or former Trustees or Directors of
Nations Fund or other management companies managed by NationsBank. Shareholders
are responsible for providing evidence sufficient to establish that they are
eligible for any waiver of the CDSC.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the plan adopted pursuant to Rule 12b-1 under the 1940
Act, pay a bonus or other consideration or incentive to Agents who sell a
minimum dollar amount of shares of the Funds during a specified period of time.
Stephens also may, from time to time, pay additional consideration to Agents not
to exceed 0.75% of the offering price per share on all sales of Investor N
Shares as an expense of Stephens or for which Stephens may be reimbursed under
the plan adopted pursuant to Rule 12b-1 or upon receipt of a CDSC. Any such
additional consideration or incentive program may be terminated at any time by
Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
Within 120 days after a redemption of Investor N Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor N Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor N
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor N Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor N Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor N Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor N Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals may reduce principal and will
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. AWPs may be terminated by shareholders on 30 days' written notice to
their Selling Agent or by Nations Fund at any time.
27
<PAGE>
How To Exchange Shares
The exchange feature enables a shareholder to exchange funds as specified below
when the shareholder believes that a shift between funds is an appropriate
investment decision. The exchange feature enables a shareholder of Investor N
Shares of a fund offered by Nations Fund to acquire shares of the same class
that are offered by any other fund of Nations Fund (except Nations Short-Term
Income Fund and Nations Short-Term Municipal Income Fund), Investor A Shares of
the Nations Short-Term Income Fund or Nations Short-Term Municipal Income Fund,
or Investor C Shares of a Nations Fund money market fund. Additionally, the
exchange feature enables a shareholder of Investor N Shares of Nations
Short-Term Income Fund to exchange such shares for Investor N Shares of Nations
Short-Term Municipal Income Fund. A qualifying exchange is based on the next
calculated net asset value per share of each fund after the exchange order is
received.
No CDSC will be imposed in connection with an exchange of Investor N Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor N Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996) to the
original shares purchased will be applied to any redemption of the acquired
shares. If a shareholder exchanges Investor N Shares of a fund for Investor C
Shares of a money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund, the acquired shares will
remain subject to the CDSC schedule applicable to the Investor N Shares
exchanged. The holding period (for purposes of determining the applicable rate
of the CDSC) does not accrue while the shares owned are Investor C Shares of a
Nations Fund money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund. As a result, the CDSC that is
ultimately charged upon a redemption is based upon the total holding period of
Investor N Shares of a fund that charges a CDSC.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor N Shares exchanged must have a current value of at least $1,000.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange. An investor may telephone an exchange request by
calling the investor's Selling Agent which is responsible for transmitting such
request to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
28
<PAGE>
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence Day,
Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for which
market quotations are readily available are valued at market value. Short-term
investments that will mature in 60 days or less are valued at amortized cost,
which approximates market value. All other securities and assets are valued at
their fair value following procedures approved by the Trustees or Directors.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. The Funds' net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor N Shares will be reduced by the amount of any
dividend or distribution. Certain Selling Agents may provide for the
reinvestment of dividends in the form of additional Investor N Shares of the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month to which the dividend relates. Dividends and
distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor N Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves the Funds of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by a
Fund of its net investment income (including net foreign currency gain) and the
excess, if any, of its net short-term capital gain over its net long-term
capital loss are taxable as ordinary income to shareholders who are not exempt
from Federal income tax, whether such income is received in cash or reinvested
in additional shares. (Federal income tax for distributions to an IRA are
generally deferred under the Code.) Corporate investors may be entitled to the
dividends received deduction on a portion of the dividends paid by those Funds
investing in the stock of domestic corporation.
Substantially all of the Funds' net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders who are not exempt from Federal income tax as long-term capital
gains, regardless of how long the shareholders have held the Funds' shares and
whether such gains are received in cash or reinvested in additional shares.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends and capital gains paid during the prior year.
29
<PAGE>
Such dividends and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Funds on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage and non-mortgage-backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates 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.
30
<PAGE>
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 GNMA, by FNMA and 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 on the greater part of principal invested far in advance of
the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary from their
coupon rates for the following reasons: (i) Certificates may be issued at a
premium or discount, rather than at par; (ii) Certificates may trade in the
secondary market at a premium or discount after issuance; (iii) interest is
earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
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.
Parallel pay CMOs are structured to provide payments of principal on each
payment date to more than one class. Planned Amortization Class CMOs ("PAC
Bonds") generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
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
31
<PAGE>
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. For additional information concerning
mortgage-backed securities, see the related SAI.
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 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 or partnerships.
Non-mortgage backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations peculiar to
the financing of the instruments underlying such securities. For example, most
organizations that issue asset backed securities relating to motor vehicle
installment purchase obligations perfect their interests in their respective
obligations only by filing a financing statement and by having the servicer of
the obligations, which is usually the originator, take custody thereof. In such
circumstances, if the servicer were to sell the same obligations to another
party, in violation of its duty not to do so, there is a risk that such party
could acquire an interest in the obligations superior to that of the holders of
the asset-backed securities. Also, although most such obligations grant a
security interest in the motor vehicle being financed, in most states the
security interest in a motor vehicle must be noted on the certificate of title
to perfect such security interest against competing claims of other parties. Due
to the larger number of vehicles involved, however, the 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
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<PAGE>
motor vehicle. The assertion of such defenses could reduce payments on the
related asset-backed securities. Insofar as credit card receivables are
concerned, credit card holders are entitled to the protection of a number of
state and Federal consumer credit laws, many of which give such holders the
right to set off certain amounts against balances owed on the credit card,
thereby reducing the amounts paid on such receivables. In addition, unlike most
other asset-backed securities, credit card receivables are unsecured obligations
of the card holder.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of its total assets at the time of
purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
Reverse repurchase agreements and dollar roll transactions may be considered to
be borrowings. When a Fund invests in a reverse repurchase agreement, it sells a
portfolio security to another party, such as a bank or broker/dealer, in return
for cash, and agrees to buy the security back at a future date and price.
Reverse repurchase agreements may be used to provide cash to satisfy unusually
heavy redemption requests without having to sell portfolio securities, or for
other temporary or emergency purposes. Generally, the effect of such a
transaction is that the Funds can recover all or most of the cash invested in
the portfolio securities involved during the term of the reverse repurchase
agreement, while they will be able to keep the interest income associated with
those portfolio securities. Such transactions are only advantageous if the
interest cost to the Funds of the reverse repurchase transaction is less than
the cost of obtaining the cash otherwise.
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 a
Fund is 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 Fund's use
of proceeds of the agreement may be restricted pending a determination by the
other party, or its trustee or receiver, whether to enforce the Fund's
obligation to
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repurchase the securities. In addition, there is a risk of delay in receiving
collateral or securities or in repurchasing the securities covered by the
reverse repurchase agreement or even of a loss of rights in the collateral or
securities in the event the buyer of the securities under the reverse repurchase
agreement files for bankruptcy or becomes insolvent. The Fund only enters into
reverse repurchase agreements (and repurchase agreements) with counterparties
that are deemed by the Adviser to be credit worthy. Reverse repurchase
agreements are speculative techniques involving leverage, and are subject to
asset coverage requirements if the Funds do not establish and maintain a
segregated account (as described above). 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 Fund's 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.
Dollar roll transactions consist of the sale by a Fund of mortgage-backed or
other asset-backed securities, together with a commitment to purchase similar,
but not identical, securities at a future date, at the same price. In addition,
a Fund is paid a fee as consideration for entering into the commitment to
purchase. 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.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and foreign commercial banks.
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, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
CONVERTIBLE SECURITIES, PREFERRED STOCK, AND WARRANTS: Certain of the Funds may
invest in debt securities convertible into or exchangeable for equity
securities, preferred stocks or warrants. Preferred stocks are securities that
represent an ownership interest in a corporation providing the owner with claims
on a company's earnings and assets before common stock owners, but after bond or
other debt security owners. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of the
warrants.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FOREIGN CURRENCY TRANSACTIONS: Certain of the Funds may enter into foreign
currency exchange transactions to convert foreign currencies to and from the
U.S. dollar. A Fund either enters into these transactions on a spot (I.E., cash)
basis at the spot rate prevailing in the foreign currency exchange market, or
uses forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract is an obligation by a Fund to purchase or sell a
specific currency at a future date, which may be any fixed number of days from
the date of the contract.
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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. 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 will generally enter into forward currency exchange contracts only under
two circumstances: (i) when such Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, to "lock" in the U.S.
dollar price of the security; and (ii) when the Adviser believes that the
currency of a particular foreign country may experience a substantial movement
against another currency. Under certain circumstances, a Fund may commit a
substantial portion of its portfolio to the execution of these contracts. The
Adviser will consider the effects such a commitment would have on the investment
program of such Fund and the flexibility of such Fund to purchase additional
securities. Although forward contracts will be used primarily to protect a Fund
from adverse currency movements, they also involve the risk that anticipated
currency movements will not be accurately predicted. The Funds will generally
not enter into forward contracts with terms of greater than one year.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect such Funds against adverse market movements by investing
in futures, options and other derivative instruments. These include the purchase
and writing of options on securities
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(including index options) and options on foreign currencies, and investing in
futures contracts for the purchase or sale of instruments based on financial
indices, including interest rate indices or indices of U.S. or foreign
government, equity or fixed income securities ("futures contracts"), options on
futures contracts, forward contracts and swaps and swap-related products such as
equity swap contracts, interest rate swaps, currency swaps, caps, collars and
floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts and
swaps include: imperfect correlation between the price of futures, options and
forward contracts and movements in the prices of the securities or currencies
being hedged; the possible absence of a liquid secondary market for any
particular instrument at any time; and the possible need to defer closing out
certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAIs.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by such Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E., the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
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increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
LOWER-RATED DEBT SECURITIES: Nations Diversified Income Fund may invest in
lower-rated debt securities. Lower rated, high-yielding securities are those
rated "Ba" or "B" by Moody's or "BB" or "B" by S&P which are commonly referred
to as "junk bonds." These bonds provide poor protection for payment of principal
and interest. Lower-quality bonds involve greater risk of default or price
changes due to changes in the issuer's creditworthiness than securities assigned
a higher quality rating. These securities are considered to have speculative
characteristics and indicate an aggressive approach to income investing. Each
Fund that may invest in lower-rated debt securities intends to limit their
investments in lower-quality debt securities to 35% of assets.
The market for lower-rated securities may be thinner and less active than that
for higher quality securities, which can adversely affect the price at which
these securities can be sold. If market quotations are not available, these
lower-rated securities will be valued in accordance with procedures established
by the Funds' Boards, including the use of outside pricing services. Adverse
publicity and changing investor perceptions may affect the ability of outside
pricing services used by a Fund to value its portfolio securities, and a Fund's
ability to dispose of these lower-rated bonds.
The market prices of lower-rated securities may fluctuate more than higher-rated
securities and may decline significantly in periods of general economic
difficulty which may follow periods of rising interest rates. During an economic
downturn or a prolonged period of rising interest rates, the ability of issuers
of lower quality debt to service their payment obligations, meet projected
goals, or obtain additional financing may be impaired.
Since the risk of default is higher for lower-rated securities, the Adviser will
try to minimize the risks inherent in investing in lower-rated debt securities
by engaging in credit analysis, diversification, and attention to current
developments and trends affecting interest rates and economic conditions. The
Adviser will attempt to identify those issuers of high-yielding securities whose
financial condition is adequate to meet future obligations, have improved, or
are expected to improve in the future.
Unrated securities are not necessarily of lower quality than rated securities,
but they may not be attractive to as many buyers. Each Fund's policies regarding
lower-rated debt securities is not fundamental and may be changed at any time
without shareholder approval.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
Obligations, U.S. Government Obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
MUNICIPAL SECURITIES: 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
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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.
Municipal securities may include participations in privately arranged loans to
municipal borrowers, some of which may be referred to as "municipal leases," and
units of participation in trusts holding pools of tax exempt leases. 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. To the extent these securities
are illiquid, they will be subject to each Fund's limitation on investments in
illiquid securities. 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.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying municipal
securities. 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.
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.
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.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that
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security from the Fund at a specified price and date or upon demand. This
technique offers a method of earning income on idle cash. A risk associated with
repurchase agreements is the failure of the seller to repurchase the securities
as agreed, which may cause a Fund to suffer a loss if the market value of such
securities declines before they can be liquidated on the open market. Repurchase
agreements with a duration of more than seven days are considered illiquid
securities and are subject to the limit stated above. A Fund may enter into
joint repurchase agreements jointly with other investment portfolios of Nations
Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging against changes in values of a Fund's securities or changes in the
prevailing levels of interest rates or currency exchange rates. The contracts
entail certain risks, including but not limited to the following: no assurance
that futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of, and therefore backed by the full faith and
credit of, the U.S. Treasury, in some cases payment of interest and principal on
such obligations is guaranteed by the U.S. Government, E.G., GNMA certificates;
in other cases interest and principal are not guaranteed, E.G., obligations of
the Federal Home Loan Bank System and the Federal Farm Credit Bank. No assurance
can be given that the U.S. Government would provide financial support to
government-sponsored instrumentalities if it is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S.
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Government Obligations are subject to fluctuations in yield or value due to
their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest six ratings used by S&P for corporate and
municipal bonds. The first four ratings denote investment grade securities.
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay interest and repay principal.
AA -- Debt rated AA is considered to have a very strong capacity to pay
interest and repay principal and differs from AAA issues only in a small
degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than debt in higher-rated
categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for those in
higher-rated categories.
BB, B -- Bonds rated BB and B are regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. BB represents the lowest
degree of speculation and B a higher degree of speculation. While such
bonds will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
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 for corporate
and municipal bonds. The first four ratings denote investment grade securities.
Aaa -- Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective ele-
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ments are likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such issues.
Aa -- Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long-term risks appear somewhat
larger than in Aaa securities.
A -- Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa -- Bonds that are rated Baa are considered medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may
be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa through B. The modifier 1 indicates that the bond being rated ranks in
the higher end of its generic rating category; the modifier 2 indicates a
mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower
end of its generic rating category. With regard to municipal bonds, those bonds
in the Aa, A and Baa groups which Moody's believes possess the strongest
investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is
41
<PAGE>
unlikely to be affected by reasonably foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable-rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that are investment
grade:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating
42
<PAGE>
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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
AAA -- The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA -- The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A -- The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB -- The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
The BankWatch short-term ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned. The BankWatch short-term ratings specifically assess
the likelihood of an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is
43
<PAGE>
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 three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
44
<PAGE>
Prospectus
INVESTOR N SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
listed in the column to the right (each a "Fund"
and collectively the "Tax-Exempt Funds") of Nations
Fund Trust, an open-end management investment
company in the Nations Fund Family ("Nations Fund"
or "Nations Fund Family"). This Prospectus
describes one class of shares of each Tax-Exempt
Fund -- Investor N Shares.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor N Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust is
contained in a separate Statement of Additional
Information (the "SAI"), that has been filed with
the Securities and Exchange Commission (the "SEC")
and is available upon request without charge by
writing or calling Nations Fund at its address or
telephone number shown below. The SAI bears the
same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
NationsBanc Advisors, Inc. ("NBAI") is the
investment adviser to the Funds. TradeStreet
Investment Associates, Inc. ("TradeStreet") is sub-
investment adviser to the Funds. As used herein the
"Adviser" shall mean NBAI and/or TradeStreet as the
context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TAX-EXEMPT FUNDS
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Municipal Income Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 6
Financial Highlights 11
Objectives 29
How Objectives Are Pursued 31
How Performance Is Shown 35
How The Funds Are Managed 36
Organization And History 40
About Your Investment
How To Buy Shares 41
Shareholder Servicing And Distribution Plans 42
How To Redeem Shares 43
How To Exchange Shares 45
How The Funds Value Their Shares 46
How Dividends And Distributions Are Made;
Tax Information 47
Appendix A -- Portfolio Securities 49
Appendix B -- Description Of Ratings 55
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS,
OR IN THE FUNDS' SAI INCORPORATED HEREIN BY
REFERENCE, IN CONNECTION WITH THE OFFERING MADE BY
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY NATIONS FUND OR
ITS DISTRIBUTOR. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFERING BY NATIONS FUND OR BY THE
DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(BULLET) TYPE OF COMPANY: Open-end management investment company.
(BULLET) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Municipal Income Fund's investment objective is to seek
current income exempt from Federal income tax as is consistent with
prudent investment risk. Such Fund invests primarily in investment
grade obligations issued by or on behalf of states, territories and
possessions of the United States, the District of Columbia, and their
political subdivisions, agencies, instrumentalities and authorities,
the interest on which, in the opinion of counsel to the issuer or
bond counsel, is exempt from Federal income tax.
(Bullet) Nations Short-Term Municipal Income Fund's investment objective is to
seek current income exempt from Federal income tax consistent with
minimal fluctuation of principal. Such Fund invests primarily in
investment grade obligations issued by or on behalf of states,
territories and possessions of the United States, the District of
Columbia, and their political subdivisions, agencies,
instrumentalities and authorities, the interest on which, in the
opinion of counsel to the issuer or bond counsel, is exempt from
Federal income tax.
(Bullet) Nations Intermediate Municipal Bond Fund's investment objective is to
seek current income exempt from Federal income tax consistent with
moderate fluctuation of principal.
(Bullet) Nations Florida Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal income tax
and the Florida state intangibles tax consistent with moderate
fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
(Bullet) Nations Florida Municipal Bond Fund's investment objective is to seek
current income exempt from Federal income tax and the Florida state
intangibles tax as is consistent with prudent investment risk by
investing primarily in long-term, investment grade municipal
securities.
(Bullet) Nations Georgia Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and Georgia
state income taxes consistent with moderate fluctuation of principal
by investing primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations Georgia Municipal Bond Fund's investment objective is to seek
current income exempt from Federal and Georgia state income taxes as
is consistent with prudent investment risk by investing primarily in
long-term, investment grade municipal securities.
(Bullet) Nations Maryland Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and Maryland
state income taxes consistent with moderate fluctuation of principal
by investing primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations Maryland Municipal Bond Fund's investment objective is to
seek current income exempt from Federal and Maryland state income
taxes as is consistent with prudent investment risk by investing
primarily in long-term, investment grade municipal securities.
3
<PAGE>
(Bullet) Nations North Carolina Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and North
Carolina state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment
grade municipal securities.
(Bullet) Nations North Carolina Municipal Bond Fund's investment objective is
to seek current income exempt from Federal and North Carolina state
income taxes as is consistent with prudent investment risk by
investing primarily in long-term, investment grade municipal
securities.
(Bullet) Nations South Carolina Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and South
Carolina state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment
grade municipal securities.
(Bullet) Nations South Carolina Municipal Bond Fund's investment objective is
to seek current income exempt from Federal and South Carolina state
income taxes as is consistent with prudent investment risk by
investing primarily in long-term, investment grade municipal
securities.
(Bullet) Nations Tennessee Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal income tax
and the Tennessee Hall income tax on unearned income consistent with
moderate fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal securities.
(Bullet) Nations Tennessee Municipal Bond Fund's investment objective is to
seek current income exempt from Federal income tax and the Tennessee
Hall income tax on unearned income consistent with prudent investment
risk by investing primarily in long-term, investment grade municipal
securities.
(Bullet) Nations Texas Intermediate Municipal Bond Fund's investment objective
is to seek current income exempt from Federal income tax consistent
with moderate fluctuation of principal by investing primarily in
intermediate-term, investment grade municipal securities.
(Bullet) Nations Texas Municipal Bond Fund's investment objective is to seek
current income exempt from Federal income tax as is consistent with
prudent investment risk by investing primarily in long-term,
investment grade municipal securities.
(Bullet) Nations Virginia Intermediate Municipal Bond Fund's investment
objective is to seek current income exempt from Federal and Virginia
state income taxes consistent with moderate fluctuation of principal
by investing primarily in intermediate-term, investment grade
municipal securities.
(Bullet) Nations Virginia Municipal Bond Fund's investment objective is to
seek current income exempt from Federal and Virginia state income
taxes as is consistent with prudent investment risk by investing
primarily in long-term, investment grade municipal securities.
(BULLET) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(BULLET) DIVIDENDS AND DISTRIBUTIONS: The Funds declare dividends daily and pay
them monthly. Each Fund's net realized capital gains, including net
short-term capital gains, are distributed at least annually.
(BULLET) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Investments in a Fund are not insured against loss of principal.
Investments by a Fund in debt securities, including U.S. Government
bonds, are subject to
4
<PAGE>
interest rate risk, which is the risk that increases in market interest
rates will adversely affect a Fund's investments in debt securities.
The value of a Fund's investments in debt securities 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 which are not backed by
the United States Government are subject to credit risk, which is the
risk that the issuer may not be able to pay principal and/or interest
when due. Certain of the Funds' investments constitute derivative
securities. Certain types of derivative securities can, under certain
circumstances, significantly increase an investor's exposure to market
or other risks. Since the State Intermediate Municipal Bond Funds and
State Municipal Bond Funds invest primarily in securities issued by
entities located in a single state, such Funds are more susceptible to
changes in value due to political or economic changes affecting such
states or their subdivisions. For a discussion of these and other
factors, see "How Objectives Are Pursued -- Risk Considerations" and
"Appendix A -- Portfolio Securities."
(BULLET) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder.
$100 minimum subsequent investment (except for investments pursuant to
the Systematic Investment Plan). See "How To Buy Shares."
5
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following tables summarize shareholder transaction and operating expenses for
Investor N Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
INVESTOR N SHARES
<TABLE>
<CAPTION>
Nations
Nations Nations Florida Nations
Short-Term Intermediate Nations Intermediate Florida
SHAREHOLDER Municipal Municipal Municipal Municipal Municipal
TRANSACTION EXPENSES Income Fund Bond Fund Income Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C>
Sales Load Imposed on
Purchases None None None None None
Deferred Sales Charge
(as a percentage of
the lower of the
original purchase
price or redemption
proceeds)1 None None None None None
</TABLE>
<TABLE>
<CAPTION>
Nations
Georgia Nations
Intermediate Georgia
SHAREHOLDER Municipal Municipal
TRANSACTION EXPENSES Bond Fund Bond Fund
<S> <C> <C>
Sales Load Imposed on
Purchases None None
Deferred Sales Charge
(as a percentage of
the lower of the
original purchase
price or redemption
proceeds)1 None None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Nations
Nations Nations Florida Nations
Short-Term Intermediate Nations Intermediate Florida
Municipal Municipal Municipal Municipal Municipal
Income Fund Bond Fund Income Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C>
Management Fees (After
Fee Waivers)2 .06% .17% .30% .14% .26%
Rule 12b-1 Fees (After
Fee Waivers)2 .10% .25% .50% .25% .50%
Shareholder Servicing
Fees .25% .25% .25% .25% .25%
Other Expenses .34% .33% .30% .36% .34%
Total Operating
Expenses (After Fee
Waivers and Expense
Reimbursements)2 .75% 1.00% 1.35% 1.00% 1.35%
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND
OPERATING
EXPENSES
(as a percentage of
average net assets)
Nations
Georgia Nations
Intermediate Georgia
Municipal Municipal
Bond Fund Bond Fund
<S> <C> <C>
Management Fees (After
Fee Waivers)2 .17% .10%
Rule 12b-1 Fees (After
Fee Waivers)2 .25% .50%
Shareholder Servicing
Fees .25% .25%
Other Expenses .33% .50%
Total Operating
Expenses (After Fee
Waivers and Expense
Reimbursements)2 1.00% 1.35%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge, if any, applicable at the time of
purchase. See "How To Redeem Shares -- Contingent Deferred Sales Charge."
2 See page 9 for a discussion of the actual expenses absent such fee waivers.
6
<PAGE>
<TABLE>
<CAPTION>
Nations Nations
Maryland Nations North Carolina
Intermediate Maryland Intermediate
Municipal Municipal Municipal
SHAREHOLDER TRANSACTION EXPENSES Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers)2 .20% .12% .13%
Rule 12b-1 Fees (After Fee Waivers)2 .25% .50% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements)2 .30% .48% .37%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)2 1.00% 1.35% 1.00%
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations South Carolina Nations
North Carolina Intermediate South Carolina
Municipal Municipal Municipal
SHAREHOLDER TRANSACTION EXPENSES Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers)2 .23% .18% .10%
Rule 12b-1 Fees (After Fee Waivers)2 .50% .25% .50%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses .37% .32% .50%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)2 1.35% 1.00% 1.35%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge, if any, applicable at the time of
purchase. See "How To Redeem Shares -- Contingent Deferred Sales Charge."
2 See page 9 for a discussion of the actual expenses absent such fee waivers.
7
<PAGE>
<TABLE>
<CAPTION>
Nations Nations
Tennessee Nations Texas
Intermediate Tennessee Intermediate
Municipal Municipal Municipal
SHAREHOLDER TRANSACTION EXPENSES Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers)2 .07% .02% .11%
Rule 12b-1 Fees (After Fee Waivers)2 .25% .50% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses .43% .58% .39%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)2 1.00% 1.35% 1.00%
</TABLE>
2 See page 9 for a discussion of the actual expenses absent such fee waivers.
<TABLE>
<CAPTION>
Nations
Nations Virginia Nations
Texas Intermediate Virginia
Municipal Municipal Municipal
SHAREHOLDER TRANSACTION EXPENSES Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge (as a percentage of the lower of the original
purchase price or redemption proceeds)1 None None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees (After Fee Waivers)2 .12% .24% .16%
Rule 12b-1 Fees (After Fee Waivers)2 .50% .25% .50%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses .48% .26% .44%
Total Operating Expenses (After Fee Waivers and Expense Reimbursements)2 1.35% 1.00% 1.35%
</TABLE>
1 Investor N Shares purchased prior to January 1, 1996 will continue to be
subject to the Deferred Sales Charge, if any, applicable at the time of
purchase. See "How To Redeem Shares -- Contingent Deferred Sales Charge."
2 See page 9 for a discussion of the actual expenses absent such fee waivers.
8
<PAGE>
EXAMPLES: You would pay the following expenses on a $1,000 investment in
Investor N Shares of the indicated Fund, assuming (1) a 5% annual return and (2)
redemption at the end of each time period.
<TABLE>
<CAPTION>
Nations Nations
Nations Nations Florida Nations Georgia
Short-Term Intermediate Nations Intermediate Florida Intermediate
Municipal Municipal Municipal Municipal Municipal Municipal
Income Fund Bond Fund Income Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 8 $ 10 $ 14 $ 10 $ 14 $ 10
3 Years $ 24 $ 32 $ 43 $ 32 $ 43 $ 32
5 Years $ 42 $ 55 $ 74 $ 55 $ 74 $ 55
10 Years $ 93 $ 122 $ 162 $ 122 $ 162 $ 122
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations Maryland
Georgia Intermediate
Municipal Municipal
Bond Fund Bond Fund
<S> <C> <C>
1 Year $ 14 $ 10
3 Years $ 43 $ 32
5 Years $ 74 $ 55
10 Years $ 162 $ 122
</TABLE>
<TABLE>
<CAPTION>
Nations Nations Nations
Nations North Carolina Nations South Carolina Nations Tennessee
Maryland Intermediate North Carolina Intermediate South Carolina Intermediate
Municipal Municipal Municipal Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C> <C> <C> <C>
1 Year $ 14 $ 10 $ 14 $ 10 $ 14 $ 10
3 Years $ 43 $ 32 $ 43 $ 32 $ 43 $ 32
5 Years $ 74 $ 55 $ 74 $ 55 $ 74 $ 55
10 Years $ 162 $ 122 $ 162 $ 122 $ 162 $ 122
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations Texas
Tennessee Intermediate
Municipal Municipal
Bond Fund Bond Fund
<S> <C> <C>
1 Year $ 14 $ 10
3 Years $ 43 $ 32
5 Years $ 74 $ 55
10 Years $ 162 $ 122
</TABLE>
<TABLE>
<CAPTION>
Nations
Nations Virginia Nations
Texas Intermediate Virginia
Municipal Municipal Municipal
Bond Fund Bond Fund Bond Fund
<S> <C> <C> <C>
1 Year $ 14 $ 10 $ 14
3 Years $ 43 $ 32 $ 43
5 Years $ 74 $ 55 $ 74
10 Years $ 162 $ 122 $ 162
</TABLE>
9
<PAGE>
The purpose of the foregoing tables is to assist an investor in understanding
the various shareholder transaction and operating expenses that an investor in
Investor N Shares of the Funds will bear either directly or indirectly. The
figures in the above tables are based on amounts incurred during each Fund's
most recent fiscal year and have been adjusted as necessary to reflect current
service provider fees. There is no assurance that any fee waivers and
reimbursements will continue beyond the current fiscal year. If fee waivers
and/or reimbursements are discontinued, the amounts contained in the "Examples"
above may increase. Long-term shareholders of a Fund could pay more in sales
charges than the economic equivalent of the maximum front-end sales charges
applicable to mutual funds sold by members of the National Association of
Securities Dealers, Inc. For more complete descriptions of the Funds' operating
expenses, see "How The Funds Are Managed."
Absent fee waivers and reimbursements, "Management Fees," "Rule 12b-1 Fees" and
"Total Operating Expenses" for Investor N Shares of the indicated Fund would
have been as follows: Nations Municipal Income Fund -- .60%, .75% and 1.90%,
respectively; Nations Short-Term Municipal Income Fund -- .50%, .75% and 1.84%,
respectively; Nations Intermediate Municipal Bond Fund -- .50%, .75% and 1.83%,
respectively; Nations Florida Intermediate Municipal Bond Fund -- .50%, .75% and
1.86%, respectively; Nations Florida Municipal Bond Fund -- .60%, .75% and
1.94%, respectively; Nations Georgia Intermediate Municipal Bond Fund -- .50%,
.75% and 1.83%, respectively; Nations Georgia Municipal Bond Fund -- .60%, .75%
and 2.10%, respectively; Nations Maryland Intermediate Municipal Bond
Fund -- .50%, .75% and 1.80%, respectively; Nations Maryland Municipal Bond
Fund -- .60%, .75% and 2.08%, respectively; Nations North Carolina Intermediate
Bond Fund -- .50%, .75% and 1.87%, respectively; Nations North Carolina
Municipal Bond Fund -- .60%, .75% and 1.97%, respectively; Nations South
Carolina Intermediate Municipal Bond Fund -- .50%, .75% and 1.82%, respectively;
Nations South Carolina Municipal Bond Fund -- .60%, .75% and 2.10%,
respectively; Nations Tennessee Intermediate Municipal Bond Fund -- .50%, .75%
and 1.93%, respectively; Nations Tennessee Municipal Bond Fund -- .60%, .75% and
2.18%, respectively; Nations Texas Intermediate Municipal Bond Fund -- .50%,
.75% and 1.89%, respectively; Nations Texas Municipal Bond Fund -- .60%, .75%
and 2.08%, respectively; Nations Virginia Intermediate Municipal Bond
Fund -- .50%, .75% and 1.76%, respectively; and Nations Virginia Municipal Bond
Fund -- .60%, .75% and 2.04% respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
10
<PAGE>
Financial Highlights
The audited financial information on the following pages has been derived from
the financial statements of Nations Fund Trust. Price Waterhouse LLP is the
independent accountant to Nations Fund Trust. The reports of Price Waterhouse
LLP for the fiscal year ended November 30, 1995 accompany the financial
statements for such period and are incorporated by reference in the SAI, which
is available upon request. Shareholders of a Fund will receive unaudited
semi-annual reports describing the Fund's investment operations and annual
financial statements audited by the Funds' independent accountant.
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.03 $ 9.69 $ 9.96 $ 10.00
Net investment income 0.13 0.40 0.34 0.04
Net realized and unrealized gain/(loss) on investments (0.05) 0.34 (0.27) (0.04)
Net increase in net asset value from operations 0.08 0.74 0.07 --
Distributions:
Dividends from net investment income (0.13) (0.40) (0.34) (0.04)
Distributions from net realized capital gains -- -- (0.00)# --
Total dividends and distributions (0.13) (0.40) (0.34) (0.04)
Net asset value, end of period $ 9.98 $ 10.03 $ 9.69 $ 9.96
Total return++ 0.84% 7.78% 0.73% (0.02)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 13.859 $ 9,803 $ 13,421 $ 5,863
Ratio of operating expenses to average net assets 0.75%+(a) 0.80%(a) 0.69%(a) 0.44%+
Ratio of net investment income to average net assets 4.02%+ 4.03% 3.48% 2.81%+
Portfolio turnover rate 16% 82% 57% 45%
Ratio of operating expenses to average net assets
without waivers and/or expense reimburements 1.21%+ 1.28% 1.15% 1.39%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.35 $ 0.31 $ 0.04
</TABLE>
* Nations Short-Term Municipal Income Fund's Investor N Shares commenced
operations on October 12, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
11
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR PERIOD
ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94*
<S> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.17 $ 9.24 $ 10.13
Net investment income 0.14 0.43 0.39
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.88)
Net increase/(decrease) in net asset value from operations 0.00 1.36 (0.49)
Distributions:
Dividends from net investment income (0.14) (0.43) (0.39)
Distributions in excess of net investment income -- -- (0.00)#
Distributions from net realized capital gains -- -- (0.01)
Total dividends and distributions (0.14) (0.43) (0.40)
Net asset value, end of period $ 10.03 $ 10.17 $ 9.24
Total return++ 0.03% 15.02% (5.00)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,623 $ 1,352 $ 943
Ratio of operating expenses to average net assets 1.00%+(a) 0.95%(a) 0.85%+(a)
Ratio of net investment income to average net assets 4.25%+ 4.41% 4.09%+
Portfolio turnover rate 4% 31% 51%
Ratio of operating expenses to average net assets without waivers
and/or expense reimbursements 1.33%+ 1.34% 1.38%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.13 $ 0.40 $ 0.34
</TABLE>
* Nations Intermediate Municipal Bond Fund's Investor N Shares commenced
operations on December 2, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
12
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MUNICIPAL INCOME FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 11.08 $ 9.64 $ 11.33 $ 11.13
Net investment income 0.17 0.51 0.49 0.23
Net realized and unrealized gain/(loss) on investments (0.24) 1.44 (1.44) 0.20
Net increase/(decrease) in net asset value from operations (0.07) 1.95 (0.95) 0.43
Distributions:
Dividends from net investment income (0.17) (0.51) (0.49) (0.23)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.25) --
Total dividends and distributions (0.17) (0.51) (0.74) (0.23)
Net asset value, end of period $ 10.84 $ 11.08 $ 9.64 $ 11.33
Total return++ (0.66)% 20.65% (8.86)% 3.89%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 16,870 $ 18,165 $ 17,101 $ 15,133
Ratio of operating expenses to average net assets 1.35%+ 1.35% 1.36% 1.27%+
Ratio of operating expenses to average net assets including
interest expense --(a) --(a) 1.37% --
Ratio of net investment income to average net assets 4.60%+ 4.88% 4.67% 4.49%+
Portfolio turnover rate 4% 49% 63% 48%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.66%+ 1.63% 1.65% 1.59%+
Net investment income per share without waivers and/or expense
reimbursements $ 0.16 $ 0.48 $ 0.46 $ 0.22
</TABLE>
* Nations Municipal Income Fund's Investor N Shares commenced operations on
June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
13
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.63 $ 9.61 $ 10.50 $ 10.32
Net investment income 0.15 0.43 0.40 0.18
Net realized and unrealized gain/(loss) on investments (0.17) 1.02 (0.88) 0.18
Net increase/(decrease) in net asset value from operations (0.02) 1.45 (0.48) 0.36
Distributions:
Dividends from net investment income (0.15) (0.43) (0.40) (0.18)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.43) (0.41) (0.18)
Net asset value, end of period $ 10.46 $ 10.63 $ 9.61 $ 10.50
Total return++ (0.23)% 15.34% (4.73)% 3.53%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,001 $ 4,775 $ 4,691 $ 3,328
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.05%(a) 0.94%+
Ratio of net investment income to average net assets 4.16%+ 4.20% 3.94% 3.78%+
Portfolio turnover rate 18% 27% 34% 15%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.36%+ 1.31% 1.26% 1.30%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.41 $ 0.38 $ 0.17
</TABLE>
* Nations Florida Intermediate Municipal Bond Fund's Investor N Shares
commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
14
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS FLORIDA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.76 $ 8.40 $ 9.73 $ 10.00
Net investment income 0.14 0.44 0.45 0.03
Net realized and unrealized gain/(loss) on investments (0.29) 1.36 (1.33) (0.27)
Net increase/(decrease) in net asset value from operations (0.15) 1.80 (0.88) (0.24)
Dividends from net investment income (0.14) (0.44) (0.45) (0.03)
Total dividends and distributions (0.14) (0.44) (0.45) (0.03)
Net asset value, end of period $ 9.47 $ 9.76 $ 8.40 $ 9.73
Total return++ (1.58)% 21.78% (9.37)% (2.35)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23,947 $ 25,398 $ 19,868 $ 11,434
Ratio of operating expenses to average net assets 1.35%+(a) 1.14%(a) 0.96%(a) 0.68%+
Ratio of net investment income to average net assets 4.28%+ 4.69% 4.80% 3.29%+
Portfolio turnover rate 7% 13% 46% 0%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.71%+ 1.70% 1.66% 1.84%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.39 $ 0.38 $ 0.02
</TABLE>
* Nations Florida Municipal Bond Fund's Investor N Shares commenced operations
on October 22, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
15
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.81 $ 9.82 $ 10.82 $ 10.61
Net investment income 0.15 0.45 0.44 0.20
Net realized and unrealized gain/(loss) on investments (0.18) 0.99 (0.98) 0.21
Net increase/(decrease) in net asset value from operations (0.03) 1.44 (0.54) 0.41
Distributions:
Dividends from net investment income (0.15) (0.45) (0.44) (0.20)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.02) --
Total dividends and distributions (0.15) (0.45) (0.46) (0.20)
Net asset value, end of period $ 10.63 $ 10.81 $ 9.82 $ 10.82
Total return++ (0.29)% 14.85% (5.17)% 3.86%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,098 $ 8,160 $ 7,269 $ 4,506
Ratio of operating expenses to average net assets 1.00%+ 1.05% 1.04% 0.96%+
Ratio of operating expenses to average net assets including
interest expense --(a) --(a) 1.05% --
Ratio of net investment income to average net assets 4.17%+ 4.26% 4.24% 4.07%+
Portfolio turnover rate 3% 17% 22% 6%
Ratio of operating expenses to average net assets without
waivers and/or expense reimburements 1.33%+ 1.30% 1.25% 1.27%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.42 $ 0.42 $ 0.18
</TABLE>
* Nations Georgia Intermediate Municipal Bond Fund Investor N Shares commenced
operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
16
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GEORGIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.72 $ 8.38 $ 9.81 $ 10.00
Net investment income 0.14 0.44 0.45 0.04
Net realized and unrealized gain/(loss) on investments (0.24) 1.34 (1.43) (0.19)
Net increase/(decrease) in net asset value from operations (0.10) 1.78 (0.98) (0.15)
Dividends from net investment income (0.14) (0.44) (0.45) (0.04)
Total dividends and distributions (0.14) (0.44) (0.45) (0.04)
Net asset value, end of period $ 9.48 $ 9.72 $ 8.38 $ 9.81
Total return++ (1.09)% 21.58% (10.28)% (1.49)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 12,254 $ 13,017 $ 9,500 $ 4,820
Ratio of operating expenses to average net assets 1.35%+(a) 1.15%(a) 0.96%(a) 0.70%+
Ratio of net investment income to average net assets 4.21%+ 4.67% 4.85% 3.63%+
Portfolio turnover rate 7% 26% 35% 30%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.89%+ 1.84% 1.79% 2.08%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.37 $ 0.38 $ 0.03
</TABLE>
* Nations Georgia Municipal Bond Fund Investor N Shares commenced operations
on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating ratio was less than 0.01%.
(b) Fiscal year end March 31. Prior to this, the fiscal year end was November
30.
17
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.95 $ 10.00 $ 11.09 $ 10.94
Net investment income 0.15 0.45 0.45 0.21
Net realized and unrealized gain/(loss) on investments (0.15) 0.98 (0.99) 0.17
Net increase/(decrease) in net asset value from operations 0.00 1.43 (0.54) 0.38
Distributions:
Dividends from net investment income (0.15) (0.45) (0.45) (0.21)
Distributions from net realized capital gains -- (0.03) (0.10) (0.02)
Distributions in excess of net realized capital gains -- -- (0.00)# --
Total dividends and distributions (0.15) (0.48) (0.55) (0.23)
Net asset value, end of period $ 10.80 $ 10.95 $ 10.00 $ 11.09
Total return++ (0.01)% 14.59% (5.12)% 3.53%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 4,500 $ 4,485 $ 4,368 $ 3,234
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.03%(a) 0.99%+
Ratio of net investment income to average net assets 4.12%+ 4.26% 4.23% 4.23%+
Portfolio turnover rate 4% 11% 22% 26%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.31%+ 1.30% 1.23% 1.23%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.42 $ 0.43 $ 0.20
</TABLE>
* Nations Maryland Intermediate Municipal Bond Fund Investor N Shares
commenced operations on June 8, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
18
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS MARYLAND MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.63 $ 8.37 $ 9.77 $ 10.00
Net investment income 0.13 0.41 0.44 0.04
Net realized and unrealized gain/(loss) on investments (0.24) 1.26 (1.40) (0.23)
Net increase/(decrease) in net asset value from operations (0.11) 1.67 (0.96) (0.19)
Total dividends and distribution (0.13) (0.41) (0.44) (0.04)
Dividends from net investment income (0.13) (0.41) (0.44) (0.04)
Net asset value, end of period $ 9.39 $ 9.36 $ 8.37 $ 9.77
Total return++ (1.19)% 20.33% (10.11)% (1.94)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) 9,662 $ 10,002 $ 4,819 $ 3,048
Ratio of operating expenses to average net assets 1.35%+ 1.15% 0.96%(a) 0.73%+
Ratio of net investment income to average net assets $ 3.97%+ 4.39% 4.73% 3.37%+
Portfolio turnover rate 7% 11% 39% 1%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.98%+ 2.01% 2.05% 2.36%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.33 $ 0.35 $ 0.02
</TABLE>
* Nations Maryland Municipal Bond Fund Investor N Shares commenced operations
on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
19
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.51 $ 9.53 $ 10.46 $ 10.31
Net investment income 0.14 0.40 0.39 0.18
Net realized and unrealized gain/(loss) on investments (0.15) 0.99 (0.88) 0.15
Net increase/(decrease) in net asset value from operations (0.01) 1.39 (0.49) 0.33
Distributions:
Dividends from net investment income (0.14) (0.40) (0.39) (0.18)
Distributions in excess of net investment income -- (0.00)# -- --
Distributions from net realized capital gains -- (0.01) (0.05) --
Total dividends and distributions (0.14) (0.41) (0.44) (0.18)
Net asset value, end of period $ 10.36 $ 10.51 $ 9.53 $ 10.46
Total return++ (0.12)% 14.84% (4.82)% 3.23%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 8,102 $ 7,848 $ 5,706 $ 3,822
Ratio of operating expenses to average net assets 1.00%+ 1.07%(a) 1.05%(a) 0.92%+
Ratio of net investment income to average net assets 3.97%+ 3.97% 3.88% 3.73%+
Portfolio turnover rate 3% 57% 37% 29%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.37%+ 1.34% 1.32% 1.35%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.38 $ 0.37 $ 0.17
</TABLE>
* Nations North Carolina Intermediate Municipal Bond Fund Investor N Shares
commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end change to March 31. Prior to this, the fiscal year end was
November 30.
20
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.73 $ 8.36 $ 9.85 $ 10.00
Net investment income 0.13 0.43 0.45 0.04
Net realized and unrealized gain/(loss) on investments (0.24) 1.37 (1.49) (0.15)
Net increase/(decrease) in net asset value from operations (0.11) 1.80 (1.04) (0.11)
Dividends from net investment income (0.13) (0.43) (0.45) (0.04)
Total dividends and distributions (0.13) (0.43) (0.45) (0.04)
Net asset value, end of period $ 9.49 $ 9.73 $ 8.36 $ 9.85
Total return++ (1.12)% 21.96% (10.92)% (1.11)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 28,298 $ 30,048 $ 23,659 $ 11,395
Ratio of operating expenses to average net assets 1.35%+ 1.13%(a) 0.96%(a) 0.69%+
Ratio of net investment income to average net assets 4.11%+ 4.68% 4.78% 3.37%+
Portfolio turnover rate 22% 40% 29% 10%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.74%+ 1.71% 1.67% 1.81%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.38 $ 0.38 $ 0.03
</TABLE>
* Nations North Carolina Municipal Bond Fund Investor N Shares commenced
operations on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
21
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.69 $ 9.76 $ 10.61 $ 10.47
Net investment income 0.15 0.46 0.45 0.20
Net realized and unrealized gain/(loss) on investments (0.17) 0.93 (0.84) 0.14
Net increase/(decrease) in net asset value from
operations (0.02) 1.39 (0.39) 0.34
Distributions:
Dividends from net investment income (0.15) (0.46) (0.45) (0.20)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.15) (0.46) (0.46) (0.20)
Net asset value, end of period $ 10.52 $ 10.69 $ 9.76 $ 10.61
Total return++ (0.17)% 14.45% (3.85)% 3.23%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,968 $ 6,457 $ 5,740 $ 4,057
Ratio of operating expenses to average net assets 1.00%+(a) 1.05%(a) 1.04%(a) 0.95%+
Ratio of net investment income to average net assets 4.31%+ 4.42% 4.32% 4.18%+
Portfolio turnover rate 6% 11% 30% 11%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.32%+ 1.25% 1.25% 1.25%+
Net investment income per share without waivers and/or
expense reimbusements $ 0.14 $ 0.44 $ 0.43 $ 0.19
</TABLE>
* Nations South Carolina Intermediate Municipal Bond Fund Investor N Shares
commenced operations on June 8, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
22
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.99 $ 8.65 $ 9.86 $ 10.00
Net investment income 0.14 0.45 0.45 0.04
Net realized and unrealized gain/(loss) on investments (0.22) 1.34 (1.21) (0.14)
Net increase/(decrease) in net asset value from
operations (0.08) 1.79 (0.76) (0.10)
Dividends from net investment income (0.14) (0.45) (0.45) (0.04)
Total dividends and distributions (0.14) (0.45) (0.45) (0.04)
Net asset value, end of period $ 9.77 $ 9.99 $ 8.65 $ 9.86
Total return++ (0.82)% 21.08% (7.97)% (1.00)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 12.991 $ 12,670 $ 8,263 $ 4,048
Ratio of operating expenses to average net assets 1.35%+(a) 1.15%(a) 0.96%(a) 0.70%+
Ratio of net investment income to average net assets 4.21%+ 4.69% 4.73% 3.56%+
Portfolio turnover rate 20% 13% 14% 8%
Ratio of operating expenses to average net assets
without waivers and/or expense reimbursements 1.88%+ 1.83% 1.87% 2.23%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.39 $ 0.37 $ 0.02
</TABLE>
* Nations South Carolina Municipal Bond Fund Investor N Shares commenced
operations on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
23
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.23 $ 9.30 $ 10.18 $ 10.03
Net investment income 0.14 0.41 0.40 0.17
Net realized and unrealized gain/(loss) on investments (0.14) 0.93 (0.87) 0.15
Net increase/(decrease) in net asset value from operations 0.00 1.34 (0.47) 0.32
Distributions:
Dividends from net investment income (0.14) (0.41) (0.40) (0.17)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.01) --
Total dividends and distributions (0.14) (0.41) (0.41) (0.17)
Net asset value, end of period $ 10.09 $ 10.23 $ 9.30 $ 10.18
Total return++ (0.04)% 14.65% (4.72)% 3.32%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 3,528 $ 3,573 $ 3,368 $ 2,210
Ratio of operating expenses to average net assets 1.00%+ 1.07% 1.02% 0.77%+
Ratio of operating expenses to average net assets including
interest expense -- --(a) 1.03% --
Ratio of net investment income to average net assets 4.01%+ 4.15% 4.06% 3.81%+
Portfolio turnover rate 3% 34% 41% 16%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.52%+ 1.42% 1.39% 1.44%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.38 $ 0.37 $ 0.14
</TABLE>
* Nations Tennessee Intermediate Municipal Bond Fund Investor N Shares
commenced operations on June 10, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
24
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TENNESSEE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.87 $ 8.58 $ 9.80 $ 10.00
Net investment income 0.14 0.45 0.45 0.04
Net realized and unrealized gain/(loss) on investments (0.19) 1.29 (1.22) (0.20)
Net increase/(decrease) in net asset value from operations (0.05) 1.74 (0.77) (0.16)
Dividends from net investment income (0.14) (0.45) (0.45) (0.04)
Total dividends and distributions (0.14) (0.45) (0.45) (0.04)
Net asset value, end of period $ 9.68 $ 9.87 $ 8.58 $ 9.80
Total return++ (0.55)% 20.63% (8.10)% (1.61)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 6,761 $ 6,619 $ 5,504 $ 3,284
Ratio of operating expenses to average net assets 1.35%+ 1.15%(a) 0.96%(a) 0.77%+
Ratio of operating expenses to average net assets including
interest expense 1.36%+ -- -- --
Ratio of net investment income to average net assets 4.17%+ 4.74% 4.81% 3.71%+
Portfolio turnover rate 2% 45% 38% 3%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 2.22%+ 2.02% 1.95% 2.46%
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.37 $ 0.37 $ 0.02
</TABLE>
* Nations Tennessee Municipal Bond Fund Investor N Shares commenced operations
on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
25
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.36 $ 9.53 $ 10.35 $ 10.25
Net investment income 0.14 0.41 0.39 0.17
Net realized and unrealized gain/(loss) on investments (0.15) 0.83 (0.79) 0.10
Net increase/(decrease) in net asset value from operations (0.01) 1.24 (0.40) 0.27
Distributions:
Dividends from net investment income (0.14) (0.41) (0.39) (0.17)
Distributions in excess of net investment income -- -- (0.00)# --
Distributions from net realized capital gains -- -- (0.03) --
Total dividends and distributions (0.14) (0.41) (0.42) (0.17)
Net asset value, end of period $ 10.21 $ 10.36 $ 9.53 $ 10.35
Total return++ (0.12)% 13.27% (3.96)% 2.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2,845 $ 3,136 $ 2,774 $ 1,330
Ratio of operating expenses to average net assets 1.00%+ 1.07%(a) 1.05%(a) 0.94%+
Ratio of net investment income to average net assets 4.02%+ 4.12% 3.90% 3.93%+
Portfolio turnover rate 11% 64% 61% 63%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.39%+ 1.33% 1.28% 1.32%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.13 $ 0.39 $ 0.37 $ 0.16
</TABLE>
* Nations Texas Intermediate Municipal Bond Fund Investor N Shares commenced
operations on June 22, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expense ratio was less than
0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
26
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TEXAS MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.70 $ 8.39 $ 9.78 $ 10.00
Net investment income 0.13 0.43 0.44 0.04
Net realized and unrealized gain/(loss) on investments (0.21) 1.31 (1.39) (0.22)
Net increase/(decrease) in net asset value from operations (0.08) 1.74 (0.95) (0.18)
Dividends from net investment income (0.13) (0.43) (0.44) (0.04)
Total dividends and distributions (0.13) (0.43) (0.44) (0.04)
Net asset value, end of period $ 9.49 $ 9.70 $ 8.39 $ 9.78
Total return++ (0.80)% 21.19% (9.98)% (1.82)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 11,838 $ 12,587 $ 10,812 $ 6,154
Ratio of operating expenses to average net assets 1.35%+ 1.14%(a) 0.97%(a) 0.70%+
Ratio of net investment income to average net assets 4.17%+ 4.70% 4.77% 3.32%+
Portfolio turnover rate 6% 50% 107% 5%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.86%+ 1.80% 1.81% 2.05%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.11 $ 0.37 $ 0.37 $ 0.03
</TABLE>
* Nations Texas Municipal Bond Fund Investor N Shares commenced operations on
October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
27
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 10.83 $ 9.94 $ 10.99 $ 10.83
Net investment income 0.15 0.46 0.45 0.21
Net realized and unrealized gain/(loss) on investments (0.14) 0.89 (0.96) 0.16
Net increase/(decrease) in net asset value from operations 0.01 1.35 (0.51) 0.37
Distributions:
Dividends from net investment income (0.15) (0.46) (0.45) (0.21)
Distributions from net realized capital gains -- (0.00)# (0.09) --
Distributions in excess of net realized capital gains -- -- (0.00)# --
Total dividends and distributions (0.15) (0.46) (0.54) (0.21)
Net asset value, end of period $ 10.69 $ 10.83 $ 9.94 $ 10.99
Total return++ 0.10% 13.82% (4.82)% 3.48%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 11,926 $ 12,163 $ 9,690 $ 5,249
Ratio of operating expenses to average net assets 1.00%+(a) 1.06%(a) 1.11%(a) 1.07%+
Ratio of net investment income to average net assets 4.22%+ 4.37% 4.26% 4.30%+
Portfolio turnover rate 2% 22% 14% 26%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.26%+ 1.24% 1.23% 1.19%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.14 $ 0.44 $ 0.43 $ 0.20
</TABLE>
* Nations Virginia Intermediate Municipal Bond Fund Investor N Shares
commenced operations on June 7, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
# Amount represents less than $0.01 per share.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
28
<PAGE>
FOR AN INVESTOR N SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS VIRGINIA MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
PERIOD YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
INVESTOR N SHARES 03/31/96(b) 11/30/95 11/30/94 11/30/93*
<S> <C> <C> <C> <C>
Operating performance:
Net asset value, beginning of period $ 9.62 $ 8.29 $ 9.77 $ 10.00
Net investment income 0.14 0.44 0.44 0.04
Net realized and unrealized gain/(loss) on investments (0.24) 1.33 (1.48) (0.23)
Net increase/(decrease) in net asset value from operations (0.10) 1.77 (1.04) (0.19)
Dividends from net investment income (0.14) (0.44) (0.44) (0.04)
Total dividends and distributions (0.14) (0.44) (0.44) (0.04)
Net asset value, end of period $ 9.38 $ 9.62 $ 8.29 $ 9.77
Total return++ (1.09)% 21.72% (10.95)% (1.93)%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 15,938 $ 16,489 $ 12,738 $ 6,580
Ratio of operating expenses to average net assets 1.35%+ 1.14%(a) 0.96%(a) 0.70%+
Ratio of operating expenses to average net assets including
interest expense 1.36%+ -- -- --
Ratio of net investment income to average net assets 4.31%+ 4.76% 4.77% 3.28%+
Portfolio turnover rate 8% 16% 61% 0%
Ratio of operating expenses to average net assets without
waivers and/or expense reimbursements 1.82%+ 1.79% 1.74% 1.90%+
Net investment income per share without waivers and/or
expense reimbursements $ 0.12 $ 0.39 $ 0.37 $ 0.03
</TABLE>
* Nations Virginia Municipal Bond Fund Investor N Shares commenced operations
on October 21, 1993.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) The effect of interest expense on the operating expenses ratio was less
than 0.01%.
(b) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
Objectives
NATIONS MUNICIPAL INCOME FUND: The investment objective of Nations Municipal
Income Fund is to seek current income exempt from Federal income tax, consistent
with prudent investment risk.
NATIONS SHORT-TERM MUNICIPAL INCOME FUND: The investment objective of Nations
Short-Term Municipal Income Fund is to seek current income exempt from Federal
income tax consistent with minimal fluctuation of principal.
NATIONS INTERMEDIATE MUNICIPAL BOND FUND: Nations Intermediate Municipal Bond
Fund's investment objective is to seek current income exempt from Federal income
tax consistent with moderate fluctuation of principal.
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND: Nations Florida Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal income tax and the Florida state intangibles tax consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS FLORIDA MUNICIPAL BOND FUND: Nations Florida Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax
and the Florida state intangibles tax, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
29
<PAGE>
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Georgia Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Georgia state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
NATIONS GEORGIA MUNICIPAL BOND FUND: Nations Georgia Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Georgia
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND: Nations Maryland Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Maryland state income taxes consistent with moderate fluctuation of
principal by investing primarily in intermediate-term, investment grade
municipal securities.
NATIONS MARYLAND MUNICIPAL BOND FUND: Nations Maryland Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Maryland
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations North Carolina
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal and North Carolina state income taxes consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND: Nations North Carolina Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
and North Carolina state income taxes, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND: Nations South Carolina
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal and South Carolina state income taxes consistent with
moderate fluctuation of principal by investing primarily in intermediate-term,
investment grade municipal securities.
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND: Nations South Carolina Municipal
Bond Fund's investment objective is to seek current income exempt from Federal
and South Carolina state income taxes, consistent with prudent investment risk,
by investing primarily in long-term, investment grade municipal securities.
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND: Nations Tennessee
Intermediate Municipal Bond Fund's investment objective is to seek current
income exempt from Federal income tax and the Tennessee Hall Income Tax on
unearned income consistent with moderate fluctuation of principal by investing
primarily in intermediate-term, investment grade municipal securities.
NATIONS TENNESSEE MUNICIPAL BOND FUND: Nations Tennessee Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax
and the Tennessee Hall Income Tax on unearned income consistent with prudent
investment risk by investing primarily in long-term, investment grade municipal
securities.
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND: Nations Texas Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal income tax consistent with moderate fluctuation of principal by
investing primarily in intermediate-term, investment grade municipal securities.
NATIONS TEXAS MUNICIPAL BOND FUND: Nations Texas Municipal Bond Fund's
investment objective is to seek current income exempt from Federal income tax,
consistent with prudent investment risk, by investing primarily in long-term,
investment grade municipal securities.
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND: Nations Virginia Intermediate
Municipal Bond Fund's investment objective is to seek current income exempt from
Federal and Virginia state income taxes consistent with moderate fluctuation of
principal by investing pri-
30
<PAGE>
marily in intermediate-term, investment grade municipal securities.
NATIONS VIRGINIA MUNICIPAL BOND FUND: Nations Virginia Municipal Bond Fund's
investment objective is to seek current income exempt from Federal and Virginia
state income taxes, consistent with prudent investment risk, by investing
primarily in long-term, investment grade municipal securities.
Nations Florida Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations South Carolina
Intermediate Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund and Nations Virginia
Intermediate Municipal Bond Fund, are sometimes collectively referred to as the
"State Intermediate Municipal Bond Funds," and Nations Florida Municipal Bond
Fund, Nations Georgia Municipal Bond Fund, Nations Maryland Municipal Bond Fund,
Nations North Carolina Municipal Bond Fund, Nations South Carolina Municipal
Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas Municipal Bond
Fund and Nations Virginia Municipal Bond Fund are sometimes collectively
referred to as the "State Municipal Bond Funds."
How Objectives Are Pursued
NATIONS SHORT-TERM MUNICIPAL INCOME FUND, NATIONS INTERMEDIATE MUNICIPAL BOND
FUND AND NATIONS MUNICIPAL INCOME FUND: In pursuing their objectives, the Funds
will invest at least 80% of the total value of their assets in investment grade
obligations issued by or on behalf of states, territories, and possessions of
the United States, the District of Columbia, and their political subdivisions,
agencies, instrumentalities, and authorities, the interest on which, in the
opinion of counsel to the issuer or bond counsel, is exempt from Federal income
tax ("Municipal Securities"). To the extent consistent with the Funds'
investment approach described in this Prospectus, the Funds are managed to seek
capital appreciation and minimize capital losses due to interest rate movements.
Under normal market conditions, the average weighted maturity and duration of
each of the Funds' portfolios are expected to be as follows: Nations Municipal
Income Fund -- average weighted maturity greater than 10 years and duration
between 7.5 and 9.5 years; Nations Intermediate Municipal Bond Fund -- average
weighted maturity between three and 10 years and duration between five and six
years; Nations Short-Term Municipal Income Fund -- average weighted maturity
less than three years and duration between 1.25 and 2.75 years.
Municipal Securities will be rated investment grade at the time of purchase by
at least one of the following nationally recognized statistical rating
organizations: Standard & Poor's Corporation ("S&P"), Moody's Investors Service,
Inc. ("Moody's"), Duff & Phelps Credit Rating Co. ("D&P"), Fitch Investors
Service, Inc. ("Fitch"), IBCA Limited or its affiliate IBCA Inc. (collectively
"IBCA"), or Thomson BankWatch, Inc. ("BankWatch") (collectively, "NRSROs") or,
if unrated, determined by the Adviser to be of comparable quality at the time of
purchase to rated obligations that may be acquired by a Fund. Obligations rated
in the lowest of the top four investment grade rating categories (E.G. rated
"BBB" by S&P or "Baa" by Moody's) have speculative characteristics and changes
in economic conditions or other circumstances are more likely to lead to a
weakened capacity to make principal and interest payments than is the case with
higher grade debt obligations. 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 a Fund. The Adviser will consider
such an event in determining whether a Fund should continue to hold the
obligation. See "Appendix B" for a description of these rating designations.
31
<PAGE>
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by a Fund include repurchase agreements and short-term debt
securities. Under normal market conditions, each Fund's investments in taxable
obligations and private activity bonds the interest on which may be treated as a
specific tax preference item under the Federal alternative minimum tax, will not
exceed 20% of its total assets at the time of purchase. The Funds may hold
uninvested cash reserves pending investment or during defensive periods.
STATE INTERMEDIATE MUNICIPAL BOND FUNDS AND STATE MUNICIPAL BOND FUNDS: Under
normal market conditions, at least 80% of the total value of the assets of the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds will
be invested in Municipal Securities, and substantially all of each Fund's assets
will be invested in debt instruments, issued by or on behalf of the pertinent
state and its political subdivisions, agencies, instrumentalities and
authorities. Under normal market conditions, the average weighted maturity and
duration of each of the State Intermediate Municipal Bond Funds and State
Municipal Bond Funds are expected to be as follows: State Intermediate Municipal
Bond Funds -- average weighted maturity between three and 10 years and duration
between five and six years; State Municipal Bond Funds -- average weighted
maturity greater than 10 years and duration greater than 10 years.
Each of the State Intermediate Municipal Bond Funds and the State Municipal Bond
Funds operates as a non-diversified fund (except to the extent diversification
is required for Federal income tax purposes).
Dividends paid by each of these Funds which are derived from interest
attributable to tax-exempt obligations of the pertinent state and that state's
political subdivisions, agencies, instrumentalities and authorities, as well as
certain other governmental issuers such as Puerto Rico, will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state. Texas and Florida do not impose a state
income tax; however, Florida imposes a state intangibles tax. Dividends derived
from interest on obligations of other governmental issuers will be exempt from
regular Federal income tax, but generally will be subject to state income tax
(with the exception of Texas and Florida). (See "How Dividends And Distributions
Are Made; Tax Information.") During normal market conditions and as a matter of
fundamental investment policy, each of these Funds will invest at least 80% of
its total assets in obligations the interest on which will be exempt from
regular Federal income tax and (with the exception of Texas and Florida) the
income tax of the pertinent state.
Municipal Securities acquired by the Funds will be rated investment grade at the
time of purchase by at least one NRSRO or, if unrated, determined by the Adviser
to be of comparable quality at the time of purchase to rated obligations that
may be acquired by the Funds. Obligations rated in the lowest of the top four
investment grade rating categories (E.G. rated "BBB" by S&P or "Baa" by Moody's)
have speculative characteristics, and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade debt obligations.
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 a Fund. The Adviser will consider such an event in determining
whether a Fund should continue to hold the obligation. See "Appendix B" below
for a description of these rating designations.
During temporary defensive periods, the Funds may invest in short-term taxable
and non-taxable obligations in such proportions as, in the opinion of the
Adviser, prevailing market or economic conditions warrant. Taxable obligations
that may be acquired by the Funds include repurchase agreements and short-term
debt securities. Under normal market conditions, each Fund's investments in
taxable obligations and private activity bonds, the interest on which
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may be treated as a specific tax preference item under the Federal alternative
minimum tax, will not exceed 20% of its total assets at the time of purchase.
GENERAL: Each Fund may invest in certain specified derivative securities,
including: interest rate swaps, caps and floors for hedging purposes;
exchange-traded options; over-the-counter options executed with primary dealers,
including long calls and puts and covered calls to enhance return; and U.S. and
foreign exchange-traded financial futures and options thereon approved by the
Commodity Futures Trading Commission ("CFTC") for market exposure
risk-management. Each Fund also may lend its portfolio securities to qualified
institutional investors and may invest in restricted, private placement and
other illiquid securities. Additionally, each Fund may purchase securities
issued by other investment companies, consistent with the Fund's investment
objective 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 or partnerships.
Certain government securities that have variable or floating interest rates or
demand, put or prepayment features or paydown schedules may be deemed to have
remaining maturities shorter than their nominal maturities for purposes of
determining the average weighted maturity and duration of the Funds.
For more information concerning these and other investments in which the Funds
may invest and the Funds' investment practices, see "Appendix A."
PORTFOLIO TURNOVER: Generally, the 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 Fund and
its shareholders. For the Funds' portfolio turnover rates, see "Financial
Highlights."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal.
The value of a Fund's investments in debt securities will, including U.S.
Government Obligations, 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. Since each of
the State Intermediate Municipal Bond Funds and State Municipal Bond Funds
invests primarily in securities issued by entities located in a single state,
such Funds are more susceptible to changes in value due to political or economic
changes affecting that state or its subdivisions.
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 Fund's investment adviser, however, only purchases
derivative securities in circumstances where it believes such purchases are
consistent with the Funds' 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 -- Portfolio Securities."
INVESTMENT LIMITATIONS: Each Fund 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 Fund's outstanding shares. Other investment limitations that
cannot be
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changed without such a vote of shareholders are described in the SAI.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry.)
2. Make loans, except that a Fund 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.
Nations Short-Term Municipal Income Fund, Nations Intermediate Municipal Bond
Fund and Nations Municipal Income Fund may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's
total assets would be invested in the securities of such issuer, except
that up to 25% of the value of the Fund's total assets may be invested
without regard to these limitations and with respect to 75% of such Fund's
assets, such Fund will not hold more than 10% of the voting securities of
any issuer.
The State Intermediate Municipal Bond Funds and the State Municipal Bond Funds
may not:
Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 25% of the value of a Fund's
total assets would be invested in the securities of one issuer, and with
respect to 50% of such Fund's total assets, more than 5% of its assets
would be invested in the securities of one issuer.
As a matter of fundamental policy, except during defensive periods, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds will invest
at least 80% of their respective total net assets in Municipal Securities the
interest on which is exempt from Federal income taxes and the pertinent state's
income taxes (with the exception of Texas and Florida). Similarly, as a matter
of fundamental policy, except during defensive periods, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond Fund and Nations
Municipal Income Fund will invest at least 80% of their respective total net
assets in Municipal Securities the interest on which is exempt from Federal
income taxes. For purposes of these fundamental policies, private activity bonds
are included in the term "Municipal Securities" only if the interest paid
thereon is exempt from Federal income tax and not treated as a specific tax
preference item under the Federal alternative minimum tax.
The investment objective and policies of each Fund, unless otherwise specified,
may be changed without a vote of the Fund's shareholders. If the investment
objective or policies of a Fund change, shareholders should consider whether the
Fund remains an appropriate investment in light of their then current position
and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAI. Should a Fund determine that any such
commitment is no longer in the best interests of the Fund, it may consider
terminating sales of its shares in the states involved.
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How Performance Is Shown
From time to time the Funds may advertise the total return, yield and
tax-equivalent yield on a class of shares. TOTAL RETURN, YIELD AND TAX-
EQUIVALENT YIELD FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO
INDICATE FUTURE PERFORMANCE. The "total return" of a class of shares of the
Funds may be calculated on an average total return basis or an aggregate total
return basis. Average annual total return refers to the average annual
compounded rates of return over one-, five-, and ten-year periods or the life of
the Fund (as stated in the advertisement) that would equate an initial amount
invested at the beginning of a stated period to the ending redeemable value of
the investment (reflecting the deduction of any applicable contingent deferred
sales charge ("CDSC")), assuming the reinvestment of all dividend and capital
gains distributions. Aggregate total return reflects the total percentage change
in the value of the investment over the measuring period again assuming the
reinvestment of all dividends and capital gains distributions. Total return may
also be presented for other periods or may not reflect the deduction of the
CDSC.
"Yield" is calculated by dividing the annualized net investment income per share
during a recent 30-day (or one month) period of a class of shares of a Fund by
the maximum public offering price per share on the last day of that period. The
yield on a class of shares does not reflect deduction of the CDSC. The
"tax-equivalent yield" of a class of shares of a Fund also may be quoted from
time to time, which shows the level of taxable yield needed to produce an
after-tax equivalent to the particular class's tax-free yield. This is done by
increasing such class's yield (calculated as above) by the amount necessary to
reflect the payment of Federal income tax at a stated tax rate. Investment
performance, which will vary, is based on many factors, including market
conditions, the composition of a Fund's portfolio and such Fund's operating
expenses. Investment performance also often reflects the risks associated with a
Fund's investment objective and policies. These factors should be considered
when comparing a Fund's investment results to those of other mutual funds and
other investment vehicles. Since yields fluctuate, yield data cannot necessarily
be used to compare an investment in the Funds with bank deposits, savings
accounts, and similar investment alternatives which often provide an agreed-upon
or guaranteed fixed yield for a stated period of time.
In addition to Investor N Shares, the Funds offer Primary A, Primary B, Investor
A and Investor C Shares. Each class of shares may bear different sales charges,
shareholder servicing fees, loads and other expenses, which may cause the
performance of a class to differ from the performance of the other classes.
Total return and yield quotations will be computed separately for each class of
a Fund's shares. Any quotation of total return or yield not reflecting CDSCs
would be reduced if such charges were reflected. Any fees charged by a selling
agent and/or servicing agent directly to its customers' accounts in connection
with investments in the Funds will not be included in calculations of total
return or yield. Each Fund's annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investor's Selling Agent (as defined below).
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How The Funds Are Managed
The business and affairs of Nations Fund Trust are managed under the direction
of its Trustees. The SAI contains the names of and general background
information concerning the Trustees of Nations Fund Trust.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and investment analysts. These policies substantially comply in all
material respects with the recommendations set forth in the May 9, 1994 Report
of the Advisory Group on Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to all of the Funds except for those Funds listed below, for which
Nations Gartmore serves as sub-investment adviser. TradeStreet is wholly owned
subsidiary of NationsBank. TradeStreet provides investment management services
to individuals, corporations and institutions.
Subject to the general supervision of the Funds' Trustees, and in accordance
with each Fund's investment policies, the Adviser formulates guidelines and
lists of approved investments for each Fund, makes decisions with respect to and
places orders for each Fund's purchases and sales of portfolio securities and
maintains records relating to such purchases and sales. The Adviser is
authorized to allocate purchase and sale orders for portfolio securities to
certain financial institutions, including, in the case of agency transactions,
financial institutions which are affiliated with the Adviser or which have sold
shares in the Funds, if the Adviser believes that the quality of the transaction
and the commission are comparable to what they would be with other qualified
brokerage firms. From time to time, to the extent consistent with their
investment objectives, policies and restrictions, the Funds may invest in
securities of companies with which NationsBank has a lending relationship. For
the services provided and expenses assumed pursuant to an Investment Advisory
Agreement, NBAI is entitled to receive advisory fees, computed daily and paid
monthly, at the following annual rates: 0.50% of each of the average daily net
assets of each of Nations Short-Term Municipal Income Fund, Nations Intermediate
Municipal Bond Fund and the State Intermediate Municipal Bond Funds; and 0.60%
of the average daily net assets of each of Nations Municipal Income Fund and the
State Municipal Bond Funds.
For the services provided and expenses assumed pursuant to a sub-advisory
agreement, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.07% of each Fund's average daily net assets.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Municipal Income Fund -- 0.30%; Nations Short-Term Municipal
Income Fund -- 0.06%; Nations Intermediate Municipal Bond Fund -- 0.17%; Nations
Florida Intermediate Municipal Bond Fund -- 0.14%; Nations Florida Municipal
Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal Bond Fund -- 0.17%;
Nations Georgia Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate
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Municipal Bond Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0%;
Nations North Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North
Carolina Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate
Municipal Bond Fund -- 0.18%; Nations South Carolina Municipal Bond
Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond Fund -- 0%; Nations
Tennessee Municipal Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond
Fund -- 0.11%; Nations Texas Municipal Bond Fund -- 0.12%; Nations Virginia
Intermediate Municipal Bond Fund -- 0.24%, and Nations Virginia Municipal Bond
Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Municipal Income Fund -- 0.30%; Nations Short-Term Municipal
Income Fund -- 0.06%; Nations Intermediate Municipal Bond Fund -- 0.17%; Nations
Florida Intermediate Municipal Bond Fund -- 0.14%; Nations Florida Municipal
Bond Fund -- 0.26%; Nations Georgia Intermediate Municipal Bond Fund -- 0.17%;
Nations Georgia Municipal Bond Fund -- 0.10%; Nations Maryland Intermediate
Municipal Bond Fund -- 0.20%; Nations Maryland Municipal Bond Fund -- 0%;
Nations North Carolina Intermediate Municipal Bond Fund -- 0.13%; Nations North
Carolina Municipal Bond Fund -- 0.23%; Nations South Carolina Intermediate
Municipal Bond Fund -- 0.18%; Nations South Carolina Municipal Bond
Fund -- 0.10%; Nations Tennessee Intermediate Municipal Bond Fund -- 0%; Nations
Tennessee Municipal Bond Fund -- 0%; Nations Texas Intermediate Municipal Bond
Fund -- 0.11%; Nations Texas Municipal Bond Fund -- 0.12%; Nations Virginia
Intermediate Municipal Bond Fund -- 0.24%; and Nations Virginia Municipal Bond
Fund -- 0.16%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Municipal Income Fund -- 0.07%; Nations Short-Term Municipal Income
Fund -- 0.07%; Nations Intermediate Municipal Bond Fund -- 0.07%; Nations
Florida Intermediate Municipal Bond Fund -- 0.07%; Nations Florida Municipal
Bond Fund -- 0.07%; Nations Georgia Intermediate Municipal Bond Fund -- 0.07%;
Nations Georgia Municipal Bond Fund -- 0.07%; Nations Maryland Intermediate
Municipal Bond Fund -- 0.07%; Nations Maryland Municipal Bond Fund -- 0.07%;
Nations North Carolina Intermediate Municipal Bond Fund -- 0.07%; Nations North
Carolina Municipal Bond Fund -- 0.07%; Nations South Carolina Intermediate
Municipal Bond Fund -- 0.07%; Nations South Carolina Municipal Bond
Fund -- 0.07%; Nations Tennessee Intermediate Municipal Bond Fund -- 0.07%;
Nations Tennessee Municipal Bond Fund -- 0.07%; Nations Texas Intermediate
Municipal Bond Fund -- 0.07%; Nations Texas Municipal Bond Fund -- 0.07%;
Nations Virginia Intermediate Municipal Bond Fund -- 0.07%; and Nations Virginia
Municipal Bond Fund -- 0.07%.
Michele M. Poirier is a Senior Product Manager, Municipal Fixed Income
Management for TradeStreet and Senior Portfolio Manager for Nations Municipal
Income Fund, Nations Florida Intermediate Municipal Bond Fund, Nations Florida
Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond Fund, Nations
Georgia Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond
Fund and Nations South Carolina Municipal Bond Fund. Ms. Poirier has been the
Portfolio Manager for Nations Municipal Income Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate Municipal Bond
Fund, and South Carolina Intermediate Municipal Bond Fund since 1992. She has
been Portfolio Manager for the other Funds since 1993. Prior to assuming her
position with TradeStreet, she was Senior Vice President and Senior Portfolio
Manager for the Investment Management Group at NationsBank. She has worked in
the investment community since 1974. Her past experience includes serving as
Director of Trading, Institutional Sales, and Municipal Trader for Financial
Service Corporation, Bankers Trust Company and The Robin-
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son-Humphrey Company respectively. Ms. Poirier received a B.B.A. in Marketing
from Georgia State University.
Mathew M. Kiselak is a Product Manager, Municipal Fixed Income Management for
TradeStreet and Portfolio Manager for Nations Short-Term Municipal Income Fund,
Nations North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations Tennessee Intermediate Municipal Bond Fund, Nations
Tennessee Municipal Bond Fund, Nations Texas Intermediate Municipal Bond Fund
and Nations Texas Municipal Bond Fund. Mr. Kiselak has been the Portfolio
Manager for Nations North Carolina Intermediate Municipal Bond Fund and
Nations North Carolina Municipal Bond Fund since 1995. He has been Portfolio
Manager for the other Funds since 1994. Prior to assuming his position with
TradeStreet, he was Vice President and Portfolio Manager for the Investment
Management Group at NationsBank. He has worked in the investment community
since 1987. His past experience includes Portfolio Manager and Municipal
Credit Analysis for Reich & Tang Inc. Mr. Kiselak received a B.A. in Economics
from Pace University.
John C. Kohl is a Director of Municipal Fixed Income Management for TradeStreet.
He is responsible for overseeing all municipal product management and is Senior
Portfolio Manager for Nations Intermediate Municipal Bond Fund, Nations Maryland
Intermediate Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations
Virginia Intermediate Municipal Bond Fund and Nations Virginia Municipal Bond
Fund. Mr. Kohl has been Portfolio Manager for the Funds since 1994. Prior to
assuming his position with TradeStreet, he was Senior Vice President and Senior
Portfolio Manager for the Investment Management Group at NationsBank. Mr. Kohl
has worked in the investment community since 1979. His past experience includes
serving as Chief Investment Officer for London Pacific Life & Annuity, Team
Leader and Portfolio Manager for Harris Trust and Savings Bank, and Management
Consultant for asset-liability of Continental Bank. Mr. Kohl received a joint
B.A. in Economics and North American Studies from McGill University.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreement and this Prospectus without violation of the Glass-Steagall Act.Such
counsel has pointed out, however, that there are no controlling judicial or
administrative interpretations or decisions and that future judicial or
administrative interpretations of, or decisions relating to, present federal or
state statutes, including the Glass-Steagall Act, and regulations relating to
the permissible activities of banks and their subsidiaries or affiliates, as
well as future changes in such 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 such services, it is expected that new
agreement's would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
the Funds pursuant to an Administration Agreement. Pursuant to the terms of the
Administration Agreement, Stephens provides various administrative and corporate
secretarial services to the Funds, including providing general oversight of
other service providers, office space, utilities and various legal and
administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, with principal offices at One Exchange Place, Boston, Massachusetts
02109, serves as the co-administrator of the Funds pursuant to a
Co-Administration Agreement. Under the Co-Administration Agreement, First Data
provides various administrative and accounting services to the Funds, including
performing
cal-
38
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culations necessary to determine net asset values and dividends, preparing tax
returns and financial statements and maintaining the portfolio records and
certain general accounting records for the Funds. For the services rendered
pursuant to the Administration and Co-Administration Agreements, Stephens and
First Data are entitled to receive a combined fee at the annual rate of up to
0.10% of each Fund's average daily net assets. For the fiscal period from
December 1, 1995 to March 31, 1996, after waivers, Nations Fund Trust paid its
administrators combined fees at the rate of 0.10% of each Fund's average daily
net assets.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of each Fund are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker/dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into a distribution agreement with Stephens which provides that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor N Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A. (the "Custodian") serves as custodian for the assets
of each Fund. The Custodian is located at 1401 Elm Street, Dallas, Texas 75202
and is a wholly owned subsidiary of NationsBank Corporation. In return for
providing custodial services, the Custodian is entitled to receive, in addition
to out-of-pocket expenses, fees payable monthly (i) at the rate of 1.25% of 1%
of the average daily net assets of each Fund, (ii) $10.00 per repurchase
collateral transaction by the Funds, and (iii) $15.00 per purchase, sale and
maturity transaction involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for the Funds'
Investor N Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachuetts 02110.
EXPENSES: The accrued expenses of a Fund, as well as certain expenses
attributable to Investor N Shares, are deducted from accrued income before
dividends are declared. Each Fund's expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
trustees' fees; federal and state securities registration and qualification
fees; brokerage fees and commissions; costs of preparing and printing
prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor N Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and sales support costs. Any general expenses of
Nations Fund Trust that are not readily identifiable as belonging to a
particular investment portfolio are allocated among all portfolios in the
proportion that the assets of a portfolio bear to the assets of Nations Fund
Trust or in such other manner as the Board of Trustees deems appropriate.
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Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
Nations Fund Trust was organized as a Massachusetts business trust on May 6,
1985. Nations Fund Trust's fiscal year end is March 31; prior to 1996, Nations
Fund Trust's fiscal year end was November 30. The Funds currently offer five
classes of shares -- Primary A Shares, Primary B Shares, Investor A Shares,
Investor C Shares and Investor N Shares. This Prospectus relates only to the
Investor N Shares of Nations Municipal Income Fund, Nations Short-Term Municipal
Income Fund, Nations Intermediate Municipal Bond Fund, the State Intermediate
Municipal Bond Funds and the State Municipal Bond Funds. To obtain additional
information regarding the Funds' other classes of shares which may be available
to you, contact your Selling Agent (as defined below) or Nations Fund at
1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund, and
shareholders of each fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class of shares. See the SAI for examples of instances where
the Investment Company Act of 1940 (the "1940 Act") requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see the SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove Trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
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About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor N Shares
in order to accommodate different types of investors. Purchase orders may be
placed through banks, broker/dealers or other financial institutions (including
certain affiliates of NationsBank) that have entered into sales support
agreements ("Sales Support Agreements") with Stephens ("Selling Agents"). There
is a minimum initial investment of $1,000. The minimum subsequent investment is
$100, except for investments pursuant to the Systematic Investment Plan
described below.
Investor N Shares are purchased at net asset value per share without the
imposition of a sales charge. Purchases may be effected on days on which the New
York Stock Exchange (the "Exchange") is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
whereby they will provide various sales support services to their customers
("Customers") who own Investor N Shares. In addition, banks, broker/dealers or
other financial institutions (including certain affiliates of NationsBank) that
have entered into shareholder servicing agreements ("Servicing Agreements") with
Nations Fund ("Servicing Agents") will provide various shareholder services for
their Customers who own Investor N Shares. Selling Agents and Servicing Agents
are sometimes referred to hereafter as "Agents." From time to time the Agents,
Stephens and Nations Fund may agree to voluntarily reduce the maximum fees
payable for sales support or shareholder services.
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor N Shares is recorded on the books of the Funds and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchase orders for Investor N Shares in a Fund
which are received by Stephens or by the Transfer Agent before the close of
regular trading hours on the Exchange (currently 4:00 p.m., Eastern time) on any
Business Day are priced according to the net asset value determined on that day
but are not executed until 4:00 p.m., Eastern time, on the Business Day on which
immediately available funds in payment of the purchase price are received by the
Funds' Custodian. Such payment must be received not later than 4:00 p.m.,
Eastern time, by the third Business Day following receipt of the order. If funds
are not received by such date, the order will not be accepted and notice thereof
will be given to the Selling Agent placing the order. Payment for orders which
are not received or accepted will be returned after prompt inquiry to the
sending Selling Agent.
The Selling Agents are responsible for transmitting orders for purchases of
Investor N Shares by their Customers, and delivering required funds, on a timely
basis. Stephens is responsible for transmitting orders it receives to Nations
Fund.
SYSTEMATIC INVESTMENT PLAN: Under the Funds' Systematic Investment Plan ("SIP")
a shareholder may automatically purchase Investor N Shares. On a bi-monthly,
monthly or quarterly basis, shareholders may direct cash to be transferred
automatically from their checking or savings accounts at any bank to their Fund
accounts. Transfers will occur on and/or about the 15th or 30th day of the
applicable month. The systematic investment amount may be in any amount from $25
to $100,000. For more information concerning the SIP, contact your Selling
Agent.
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TELEPHONE TRANSACTIONS: Investors may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature, such shareholders may be giving up a measure of security that they may
have if they were to authorize requests in writing only. Shareholders may bear
the risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
REINVESTMENT PRIVILEGE: Within 120 days after a redemption of Investor N Shares
of a Fund, a shareholder may reinvest any portion of the proceeds of such
redemption in Investor N Shares of the same Fund at the net asset value next
determined after a reinvestment request is received by the Transfer Agent,
together with the proceeds. A shareholder exercising this privilege would
receive a pro-rata credit for any CDSC paid in connection with such redemption.
A shareholder may not exercise this privilege with the proceeds of a redemption
of shares previously purchased through the reinvestment privilege.
Shareholder Servicing And
Distribution Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits each Fund to compensate Servicing Agents for services provided to
their Customers that own Investor N Shares. Payments under the Funds' Servicing
Plan are calculated daily and paid monthly at a rate or rates set from time to
time by the Funds, provided that the annual rate may not exceed 0.25% of the
average daily net asset value of the Investor N Shares.
The fees payable under the Servicing Plan are used primarily to compensate or
reimburse Servicing Agents for shareholder services provided, and related
expenses incurred, by such Servicing Agents. The shareholder services provided
by Servicing Agents may include: (i) aggregating and processing purchase and
redemption requests for Investor N Shares from Customers and transmitting net
purchase and redemption orders to Stephens or the Transfer Agent; (ii) providing
Customers with a service that invests the assets of their accounts in Investor N
Shares pursuant to specific or preauthorized instructions; (iii) processing
dividend and distribution payments from a Fund on behalf of Customers; (iv)
providing information periodically to Customers showing their positions in
Investor N Shares; (v) arranging for bank wires; and (vi) providing general
shareholder liaison services.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the terms of the Servicing Agreement. See the SAI for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees have
approved a Distribution Plan with respect to Investor N Shares of the Funds.
Pursuant to the Distribution Plan, a Fund may compensate or reimburse Stephens
for any activities or expenses primarily intended to result in the sale of the
Fund's
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Investor N Shares. Payments under the Funds' Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Trustees, provided that the annual rate may not exceed 0.75% of the average
daily net asset value of each Fund's Investor N Shares.
The fees payable under the Distribution Plan are used primarily to compensate or
reimburse Stephens for distribution services provided by it, and related
expenses incurred, including payments by Stephens to compensate or reimburse
Selling Agents for sales support services provided, and related expenses
incurred, by such Selling Agents. Payments under the Distribution Plan may be
made with respect to the following expenses: the cost of preparing, printing,
and distributing prospectuses, sales literature and advertising materials;
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of Stephens or Selling Agents; overhead
and other office expenses; opportunity costs relating to the foregoing; and any
other costs and expenses relating to distribution or sales support activities.
The overhead and other office expenses referenced above may include, without
limitation, (i) the expenses of operating Stephens' or the Selling Agents'
offices in connection with the sale of Fund shares, including rent, the salaries
and employee benefit costs of administrative, operations and support personnel,
utility costs, communications costs and the costs of stationery and supplies,
(ii) the costs of client sales seminars and travel related to distribution and
sales support activities, and (iii) other expenses relating to distribution and
sales support activities.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the Funds'
Distribution Plan described above and the terms of the Sales Support Agreements
between Selling Agents and Stephens. See the relevant SAI for more details on
the Distribution Plan.
Nations Fund understands that Agents may charge fees to their Customers who own
Investor N Shares in connection with a Customer's account. These fees would be
in addition to any amounts received by a Selling Agent under its Sales Support
Agreement with Stephens or by a Servicing Agent under its Servicing Agreement
with Nations Fund. The Sales Support Agreements and Servicing Agreements require
Agents to disclose to their Customers any compensation payable to the Agent by
Stephens or Nations Fund and any other compensation payable by the Customers for
various services provided in connection with their accounts. Customers should
read this Prospectus in light of the terms governing their accounts with their
Agents.
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent, less any applicable
CDSC. The Selling Agents are responsible for transmitting redemption orders to
Stephens or to the Transfer Agent and for crediting their Customers' accounts
with the redemption proceeds on a timely basis. No charge for wiring redemption
payments is imposed by Nations Fund. Except for any CDSC which may be applicable
upon redemption of Investor N Shares, as described below, there is no redemption
charge.
Redemption proceeds are normally wired to the redeeming Selling Agent within
three Business Days after receipt of the order by Stephens or by the Transfer
Agent. However, redemption proceeds for shares purchased by check may not be
remitted until at least 15 days after the date of purchase to ensure that the
check has cleared; a certified check, however, is deemed to be cleared
immediately.
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Nations Fund may redeem a shareholder's Investor N Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of a Fund involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor N Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor N Shares purchased prior to January 1, 1996 may be subject to a CDSC if
Investor N Shares of Nations Municipal Income Fund, Nations Intermediate
Municipal Bond Fund, the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds are redeemed within six years of the date of purchase. No
CDSC is imposed on increases in net asset value above the initial purchase
price, including shares acquired by reinvestment of distributions. Subject to
the exclusions described below, the amount of the CDSC is determined as a
percentage of the lesser of the net asset value or the purchase price of the
shares being redeemed. The amount of the CDSC will depend on the number of years
since you invested.
A CDSC is imposed at the following declining rates on Investor N Shares of
Nations Intermediate Municipal Bond Fund and the State Intermediate Municipal
Bond Funds:
<TABLE>
<CAPTION>
<S> <C>
Contingent Deferred
Sales Charge as a Percentage
Year Since Purchase of the Dollar
Made Amount Subject to Charge
First 4.0%
Second 3.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A CDSC is imposed at the following declining rates on Investor N Shares of
Nations Municipal Income Fund and the State Municipal Bond Funds:
<TABLE>
<CAPTION>
<S> <C>
Contingent Deferred
Sales Charge as a Percentage
Year Since Purchase of the Dollar
Made Amount Subject to Charge
First 5.0%
Second 4.0%
Third 3.0%
Fourth 2.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
In determining whether a CDSC is payable on any redemption, a Fund will first
redeem shares not subject to any charge, and then shares held longest during the
six year period. This will result in you paying the lowest possible CDSC. Solely
for purposes of determining the number of years from the date of purchase of
shares, all purchases are deemed to have been made on the trade date of the
transaction.
The CDSC will be waived on redemptions of Investor N Shares (i) following the
death or disa-
44
<PAGE>
bility (as defined in the Internal Revenue Code of 1986, as amended (the
"Code")) of a shareholder (including a registered joint owner), (ii) effected
pursuant to Nations Fund's right to liquidate a shareholder's account, including
instances where the aggregate net asset value of the Investor N shares held in
the account is less than the minimum account size, and (iii) effected pursuant
to the Automatic Withdrawal Plan discussed below, provided that such redemptions
do not exceed, on an annual basis, 12% of the net asset value of the Investor N
Shares in the account. In addition, the CDSC will be waived on Investor N Shares
purchased before September 30, 1994 by current or retired employees of
NationsBank and its affiliates or by current or former Trustees or Directors of
Nations Fund or other management companies managed by NationsBank. Shareholders
are responsible for providing evidence sufficient to establish that they are
eligible for any waiver of the CDSC.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the plan adopted pursuant to Rule 12b-1 under the 1940
Act, pay a bonus or other consideration or incentive to Agents who sell a
minimum dollar amount of shares of a Fund during a specified period of time.
Stephens also may, from time to time, pay additional consideration to Agents not
to exceed 0.75% of the offering price per share on all sales of Investor N
Shares as an expense of Stephens or for which Stephens may be reimbursed under
the plan adopted pursuant to Rule 12b-1 or upon receipt of a CDSC. Any such
additional consideration or incentive program may be terminated at any time by
Stephens.
In addition, Stephens has established a non-cash compensation program, pursuant
to which broker/dealers or financial institutions that sell shares of the Funds
may earn additional compensation in the form of 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 non-cash compensation program may be
amended or terminated at any time by Stephens.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a new or existing shareholder of the Funds if the value of the
Investor N Shares in his/her accounts within the Nations Fund Family (valued at
the net asset value at the time of the establishment of the AWP) equals $10,000
or more. Investor N Shares redeemed under the AWP will not be subject to a CDSC,
provided that the shares so redeemed do not exceed, on an annual basis, 12% of
the net asset value of the Investor N Shares in the account. Otherwise, any
applicable CDSC will be imposed on shares redeemed under the AWP. Shareholders
who elect to establish an AWP may receive a monthly, quarterly or annual check
or automatic transfer to a checking or savings account in a stated amount of not
less than $25 on or about the 10th or 25th day of the applicable month of
withdrawal. Investor N Shares will be redeemed (net of any applicable CDSC) as
necessary to meet withdrawal payments. Withdrawals will reduce principal and may
eventually deplete the shareholder's account. If a shareholder desires to
establish an AWP after opening an account, a signature guarantee will be
required. AWPs may be terminated by shareholders on 30 days' written notice to
their Selling Agents or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder to exchange funds as specified below
when the shareholder believes that a shift between funds is an appropriate
investment decision. The exchange feature enables a shareholder of Investor N
Shares of a fund offered by Nations Fund to acquire shares of the same class
that are offered by any other fund of Nations Fund (except Nations Short-Term
Income Fund and Nations Short-Term Municipal Income Fund),
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Investor A Shares of the Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund, or Investor C Shares of a Nations Fund money market fund.
Additionally, the exchange feature enables a shareholder of Investor N Shares of
Nations Short-Term Municipal Income Fund to exchange such shares for Investor N
Shares of Nations Short-Term Income Fund. A qualifying exchange is based on the
next calculated net asset value per share of each fund after the exchange order
is received.
No CDSC will be imposed in connection with an exchange of Investor N Shares that
meets the requirements discussed in this section. If a shareholder acquires
Investor N Shares of another fund through an exchange, any CDSC schedule
applicable (CDSCs may apply to shares purchased prior to January 1, 1996) to the
original shares purchased will be applied to any redemption of the acquired
shares. If a shareholder exchanges Investor N Shares of a fund for Investor C
Shares of a money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund, the acquired shares will
remain subject to the CDSC schedule applicable to the Investor N Shares
exchanged. The holding period (for purposes of determining the applicable rate
of the CDSC) does not accrue while the shares owned are Investor C Shares of a
Nations Fund money market fund or Investor A Shares of Nations Short-Term Income
Fund or Nations Short-Term Municipal Income Fund. As a result, the CDSC that is
ultimately charged upon a redemption is based upon the total holding period of
Investor N Shares of a fund that charges a CDSC.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within 90 days after the shares are purchased.
The Investor N Shares exchanged must have a current value of at least $1,000.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange. An investor may telephone an exchange request by
calling his/her Selling Agent which is responsible for transmitting such request
to Stephens or to the Transfer Agent.
During periods of significant economic or market change, telephone exchanges may
be difficult to complete. In such event, shares may be exchanged by mailing the
request directly to the Selling Agent through which the original shares were
purchased. An investor should consult his/her Selling Agent or Stephens for
further information regarding exchanges.
How The Funds Value Their Shares
The Funds calculate the net asset value of a share of each class by dividing the
total value of its assets, less liabilities, by the number of shares in the
class outstanding. Shares are valued as of the close of regular trading on the
Exchange (currently 4:00 p.m., Eastern time) on each Business Day. Currently,
the days on which the Exchange is closed (other than weekends) are: New Year's
Day, Presidents' Day, Good Friday, Memorial Day (observed), Independence
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<PAGE>
Day, Labor Day, Thanksgiving Day and Christmas Day. Portfolio securities for
which market quotations are readily available are valued at market value.
Short-term investments that will mature in 60 days or less are valued at
amortized cost, which approximates market value. All other securities and assets
are valued at their fair value following procedures approved by the Trustees.
How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income are declared
daily and paid monthly by the Funds. Each Fund's net realized capital gains
(including net short-term capital gains) are distributed at least annually.
Distributions from capital gains are made after applying any available capital
loss carryovers. Distributions paid by the Funds with respect to one class of
shares may be greater or less than those paid with respect to another class of
shares due to the different expenses of the different classes.
The net asset value of Investor N Shares will be reduced by the amount of any
dividend or distribution. Certain Selling Agents may provide for the
reinvestment of dividends in the form of additional Investor N Shares of the
same Fund. Dividends and distributions are paid in cash within five Business
Days of the end of the month or quarter to which the dividend relates. Dividends
and distributions payable to a shareholder are paid in cash within five Business
Days after a shareholder's complete redemption of his/her Investor N Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
As regulated investment companies, the Funds are permitted to pass through to
their shareholders tax-exempt income ("exempt-interest dividends") subject to
certain requirements which the Funds intend to satisfy. Distributions from
taxable income will be taxable as ordinary income to shareholders who are not
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. The policy of the Funds is to pay their
shareholders an amount equal to at least 90% of their exempt-interest income net
of certain deductions and of their investment company taxable income.
Exempt-interest dividends may be treated by shareholders as items of interest
excludable from their Federal gross income under Section 103(a) of the Code
unless, under the circumstances applicable to the particular shareholder, the
exclusion would be disallowed. (See the SAI under "Additional Information
Concerning Taxes.") Distributions from the Funds will not qualify for the
dividends-received deduction for corporate shareholders. Distributions of net
investment income by Nations Municipal Income Fund, Nations Short-Term Municipal
Income Fund and Nations Intermediate Municipal Bond Fund may be taxable to
investors under state or local law even though a substantial portion of such
distributions may be derived from interest on tax exempt obligations which, if
realized directly, would be exempt from such income taxes.
Substantially all of a Fund's net realized long-term capital gains will be
distributed at least annually. The Funds will generally have no tax liability
with respect to such gains, and the distributions will be taxable to
shareholders as long-term capital gains, regardless of how long the shareholders
have held the Fund's shares and whether such gains are received in cash or
reinvested in additional shares.
To the extent that dividends, if any, paid by the Funds to shareholders are
derived from taxable income or from long-term or short-term capital gains, such
dividends will not be exempt from
47
<PAGE>
Federal income tax. Each year, shareholders will be notified as to the amount
and Federal tax status of all dividends and capital gains paid during the prior
year. Such dividends and capital gains may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by a Fund on December 31 of such year in
the event such dividends are actually paid during January of the following year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account is incorrect according to
its records, or that the shareholder is subject to backup withholding. Amounts
withheld are applied to the shareholder's Federal tax liability, and a refund
may be obtained from the Internal Revenue Service if withholding results in
overpayment of taxes. Federal law also requires the Funds to withhold 30% or the
applicable tax treaty rate from dividends paid to certain nonresident alien,
non-U.S. partnership and non-U.S. corporation shareholder accounts.
If any of the Funds should hold certain private activity bonds issued after
August 7, 1986, shareholders must include, as an item of tax preference, the
portion of dividends paid by the Fund that is attributable to interest on such
bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits.
With respect to the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds, it is anticipated that exempt-interest dividends derived
from tax-exempt interest paid on municipal obligations of the pertinent state
and that state's political subdivisions, agencies, instrumentalities, and
authorities, and certain other issuers, including Puerto Rico and Guam, will be
exempt from state income tax with respect to those states which impose a state
income tax. Florida and Texas do not impose income taxes, but Florida imposes a
tax upon intangible personal property which may apply to shares of Nations
Florida Intermediate Municipal Bond Fund and Nations Florida Municipal Bond Fund
held by residents of that state. Florida has issued a Technical Assistance
Advisement indicating that shares in such Funds will not be subject to Florida's
intangibles tax, subject to certain requirements which the Funds intend to
satisfy. See the SAI for further details about state tax treatment relevant to
shareholders of these Funds.
In addition to annual disclosures as to Federal tax consequences of dividends
and distributions, shareholders of the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds will also be advised as to the state tax
consequences of dividends and distributions made each year.
The foregoing discussion is based on tax laws and regulations which were in
effect as of the date of this Prospectus and summarizes only some of the
important tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations. Further tax information is contained in the SAI.
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Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of the Prospectus
identifies each Fund's permissible investments, and the SAI contains more
information concerning such investments.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. Each Fund will limit its investments in
bank obligations so they do not exceed 25% of the Fund's total assets at the
time of purchase.
U.S. dollar-denominated obligations issued by foreign branches of domestic banks
("Eurodollar" obligations) and domestic branches of foreign banks ("Yankee
dollar" obligations) and other foreign obligations involve special investment
risks, including the possibility that liquidity could be impaired because of
future political and economic developments, the obligations may be less
marketable than comparable domestic obligations of domestic issuers, a foreign
jurisdiction might impose withholding taxes on interest income payable on such
obligations, deposits may be seized or nationalized, foreign governmental
restrictions such as exchange controls may be adopted which might adversely
affect the payment of principal of and interest on such obligations, the
selection of foreign obligations may be more difficult because there may be less
publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to the purchase of
portfolio securities. The Funds are parties to a Line of Credit Agreement with
Mellon Bank, N.A. 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.
FIXED INCOME INVESTING: The performance of the fixed income debt component of a
Fund's portfolio depends primarily on interest rate changes, the average
weighted maturity of the portfolio and the quality of the securities held. The
debt component of a Fund's portfolio will tend to decrease in value when
interest rates rise and increase when interest rates fall. A Fund's share price
and yield depend, in part, on the maturity and quality of its debt instruments.
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS: Certain of the Funds may
attempt to reduce the overall level of investment risk of particular securities
and attempt to protect a Fund against adverse market movements by investing in
futures, options and other derivative instruments. These include the purchase
and writing of options on securities (including index options) and options on
foreign currencies, and investing in futures contracts for the purchase or sale
of instruments based on financial indices, including interest rate indices or
indices of U.S. or foreign government, equity or fixed income securities
("futures contracts"), options on futures contracts, forward contracts and swaps
and swap-related products such as interest rate swaps, currency swaps, caps,
collars and floors.
The use of futures, options, forward contracts and swaps exposes a Fund to
additional investment risks and transaction costs. If the Adviser incorrectly
analyzes market conditions or does not employ the appropriate strategy with
respect to these instruments, a Fund could be left in a less favorable position.
Additional risks inherent in the use of futures, options, forward contracts
49
<PAGE>
and swaps include: imperfect correlation between the price of futures, options
and forward contracts and movements in the prices of the securities or
currencies being hedged; the possible absence of a liquid secondary market for
any particular instrument at any time; and the possible need to defer closing
out certain hedged positions to avoid adverse tax consequences. A Fund may not
purchase put and call options which are traded on a national stock exchange in
an amount exceeding 5% of its net assets. Further information on the use of
futures, options and other derivative instruments, and the associated risks, is
contained in the SAI.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Funds will not hold more
than 15% of the value of their respective net assets in securities that are
illiquid or such lower percentage as may be required by the states in which the
appropriate Fund sells its shares. Repurchase agreements, time deposits and
guaranteed investment contracts that do not provide for payment to a Fund within
seven days after notice, and illiquid restricted securities are subject to the
limitation on illiquid securities. In addition, interests in privately arranged
loans acquired by the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds may be subject to this limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or the Adviser, acting under guidelines
approved and monitored by the Fund's Board, after considering trading activity,
availability of reliable price information and other relevant information, that
an adequate trading market exists for that security. To the extent that, for a
period of time, qualified institutional buyers cease purchasing such restricted
securities pursuant to Rule 144A and Section 4(2), the level of illiquidity of a
Fund holding such securities may increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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. A
Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of one year or less. Money market
instruments may include, among other instruments, certain U.S. Treasury
obligations, U.S. Government obligations, bank instruments, commercial
instruments, repurchase agreements and municipal securities. Such instruments
are described in this Appendix A.
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MUNICIPAL SECURITIES: 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.
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. To the extent these
securities 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.
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
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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 tax.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and do not intend
to exercise their rights thereunder for trading purposes.
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.
Since each of the Funds will invest primarily in securities issued by issuers
located in one state, each of these Funds is susceptible to changes in value due
to political and economic factors affecting that state's issuers. A comparable
municipal bond fund which is not concentrated in obligations issued by issuers
located in one state would be less susceptible to these risks. If any issuer of
securities held by one of these Funds is unable to meets its financial
obligations, that Fund's income, capital, and liquidity may be adversely
affected.
The fourth most populous state, Florida, rated "Aa" by Moody's and "AA" by both
S&P and Fitch, has been and continues to be a leading tourist and retiree
destination. Florida's growing population and manageable debt load are just two
of the factors that will help Florida remain a solid investment. Led by the
service, construction and trade sectors, job growth in Florida has rebounded
from the lows of 1991-1992 and is projected to be almost double the national
average for 1996. Tourism was back in 1995 after it had suffered in the prior
two years due to hurricane Andrew and a rash of violent crimes involving foreign
tourists.
The state of Georgia has one of the best debt structures in the country, hence
the "Aaa" by Moody's, and "AAA" rating by both S&P and Fitch. The population of
Georgia has been growing at twice the national rate for the past four years. Job
growth and economic expansion have been outstanding in recent years, as Georgia
prepares to host the 1996 Summer Olympic Games. Following the Olympics,
Georgia's economy should continue to expand, albeit at a slightly lower rate.
This is due in part to Georgia's competitive manufacturing base, and the diverse
service and transportation center of Atlanta.
Maryland is one of the wealthiest states in the U.S. and has been able to
maintain its "Aaa" rating by Moody's, and "AAA" rating by both Fitch and S&P,
despite the contraction of government and defense related industries. Maryland's
economic base is highly diversified with a lower than average dependence on
manufacturing. Slow growth in Maryland is expected to continue, as government
cutbacks and downsizing reduce the employment opportunities within the state.
Debt ratios are moderate and, with Maryland ranked fifth in per capita income,
it's no surprise that income taxes and highway use taxes provide the vast
majority of support for general obligation debt. As defense cutbacks continue,
Maryland's dependence on income taxes could depress growth within the state
below national levels.
North Carolina, rated "Aaa" by Moody's, and "AAA" by both S&P and Fitch, has
benefited from an inflow of people as well as businesses. This is due in part to
North Carolina's affordable housing, above-average growth in per capita income
and below-average cost of doing busi-
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ness. North Carolina's declining textile industry has begun to give way to the
high-tech and financial sectors, as evidenced by the title of "Banking Center of
the South." Consequently, high wage job growth has been expanding at a pace
greater than national averages and is expected to continue to do so for the
foreseeable future.
The dominance of the manufacturing sector has been both a positive and a
negative for South Carolina. On the positive side, the expansion of
manufacturing, specifically autos and related parts, has lessened the impact of
the naval base closure in Charleston and provided a much needed infusion of new
jobs. On the negative side, the cyclical nature of South Carolina's
manufacturing economy has kept per capita income below national levels and
considerably below regional levels. That said, South Carolina's low debt burden,
strong security arrangements and lack of credit extension have led to a "Aaa"
rating by Moody's, "AA+" rating by S&P and a "AAA" rating by Fitch, for the
state. Combine this with a conservative plan of finance, and South Carolina
looks to be in a very strong financial position, despite its reliance on the
manufacturing sector.
Tennessee's very low debt burden, nearly exclusive use of general obligation
debt and conservative financial policies all combine to give the state of
Tennessee a "Aaa" rating by Moody's, "AA+" rating by S&P, and a "AAA" rating by
Fitch. Tennessee's economy remains in a developing mode, as the state continues
to shift its growth in manufacturing output to autos (Tennessee ranks third in
the nation in automobile production) and related products from textiles.
Tennessee relies on sales tax revenues as a main source of funds. This could
prove to be a limiting factor were it not for Tennessee's strong pattern of job
growth and growing population.
Texas has proven its ability to adapt and rebound to a changing economic
environment, both within the state and abroad. Texas has also historically taken
a conservative approach to financial management, as is reflected in the state's
"Aa" rating by Moody's, "AA" rating by S&P, and "AA-" rating by Fitch. Although
Texas has consistently led the U.S. in employment growth, unemployment in Texas
is above the national average. This is due, in part, to the heavy migration into
the state (in 1994 Texas replaced New York as the second most populous state).
Look for economic conditions in Texas to improve further as Mexico comes out of
its economic dilemma.
The state of Virginia has earned its "Aaa" rating by Moody's and "AAA" rating by
S&P and Fitch, by having a low relative tax rate, high per capita income and
strong growth in service sector jobs. A very high share of Virginia's population
is college educated, so it's no surprise that Virginia has the highest per
capita income of any of the southern states. Virginia has also maintained a low
unemployment rate despite strong growth in the labor force. Although it has a
large exposure to defense and related industries, Virginia's prudent financial
management and low debt burden should help to insulate it from any government
cutbacks in those areas.
There can be no assurance that the economic conditions on which the above
ratings for a specific state are based will continue or that particular bond
issues may not be adversely affected by changes in economic or political
conditions. More detailed information about matters relating to each of the
Funds is contained in the SAI.
OTHER INVESTMENT COMPANIES: A Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
STOCK INDEX, INTEREST RATE AND CURRENCY FUTURES CONTRACTS: The Funds may
purchase and sell futures contracts and related options with respect to non-U.S.
stock indices, non-U.S. interest rates and foreign currencies, that have been
approved by the CFTC for investment by U.S. investors, for the purpose of
hedging
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against changes in values of a Fund's securities or changes in the prevailing
levels of interest rates or currency exchange rates. The contracts entail
certain risks, including but not limited to the following: no assurance that
futures contracts transactions can be offset at favorable prices; possible
reduction of a Fund's total return due to the use of hedging; possible lack of
liquidity due to daily limits on price fluctuation; imperfect correlation
between the contracts and the securities or currencies being hedged; and
potential losses in excess of the amount invested in the futures contracts
themselves.
Trading on foreign commodity exchanges presents additional risks. Unlike trading
on domestic commodity exchanges, trading on foreign commodity exchanges is not
regulated by the CFTC and may be subject to greater risks than trading on
domestic exchanges. For example, some foreign exchanges are principal markets
for which no common clearing facility exists and a trader may look only to the
broker for performance of the contract. In addition, unless a Fund hedges
against fluctuations in the exchange rate between the U.S. dollar and the
currencies in which trading is done on foreign exchanges, any profits that such
Fund might realize could be eliminated by adverse changes in the exchange rate,
or the Fund could incur losses as a result of those changes.
U.S. GOVERNMENT OBLIGATIONS: U.S. Government obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law. The market value of
U.S. Government obligations may fluctuate due to fluctuations in market interest
rates. As a general matter, the value of debt instruments, including U.S.
Government obligations, declines when market interest rates increase and rises
when market interest rates decrease. Certain types of U.S. Government
obligations are subject to fluctuations in yield or value due to their structure
or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic banks and corporations
may carry variable or floating rates of interest. Such instruments bear interest
rates which are not fixed, but which vary with changes in specified market rates
or indices, such as a Federal Reserve composite index. A variable-rate demand
instrument is an obligation with a variable or floating interest rate and an
unconditional right of demand on the part of the holder to receive payment of
unpaid principal and accrued interest. An instrument with a demand period
exceeding seven days may be considered illiquid if there is no secondary market
for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
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Appendix B -- Description Of Ratings
The following summarizes the highest four ratings used by S&P for corporate and
municipal bonds, each of which denotes that the securities are investment grade.
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.
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 four ratings used by Moody's for corporate
and municipal bonds, each of which denotes that the securities are investment
grade.
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.
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
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strongest investment attributes are designated by the symbols Aa1, A1 or Baa1,
respectively.
The following summarizes the highest four ratings used by D&P for bonds, each of
which denotes that the securities are investment grade:
AAA -- Bonds that are rated AAA are of the highest credit quality. The risk
factors are considered to be negligible, being only slightly more than for
risk-free U.S. Treasury debt.
AA -- Bonds that are rated AA are of high credit quality. Protection
factors are strong. Risk is modest, but may vary slightly from time to time
because of economic conditions.
A -- Bonds that are rated A have protection factors which are average but
adequate. However, risk factors are more variable and greater in periods of
economic stress.
BBB -- Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk exists during economic cycles.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major categories.
The following summarizes the highest four ratings used by Fitch for bonds, each
of which denotes that the securities are investment grade:
AAA -- Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonably
foreseeable events.
AA -- Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated F-1+.
A -- Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to
be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB -- Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these
bonds, and therefore impair timely payment. The likelihood that the ratings
of these bonds will fall below investment grade is higher than for bonds
with higher ratings.
To provide more detailed indications of credit quality, the AA, A and BBB
ratings may be modified by the addition of a plus or minus sign to show relative
standing within these major rating categories.
The following summarizes the two highest ratings used by Moody's for short-term
municipal notes and variable rate demand obligations:
MIG-1/VMIG-1 -- Obligations bearing these designations are of the best
quality, enjoying strong protection from established cash flows, superior
liquidity support or demonstrated broad-based access to the market for
refinancing.
MIG-2/VMIG-2 -- Obligations bearing these designations are of high quality,
with ample margins of protection although not so large as in the preceding
group.
The following summarizes the two highest ratings used by S&P for short-term
municipal notes:
SP-1 -- Very strong or strong capacity to pay principal and interest. Those
issues determined to possess overwhelming safety characteristics are given
a "plus" (+) designation.
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SP-2 -- Satisfactory capacity to pay principal and interest.
The three highest rating categories of D&P for short-term debt, each of which
denotes that the securities are investment grade, are D-1, D-2 and D-3. D&P
employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the three highest rating categories used by Fitch for
short-term obligations, each of which denotes securities that 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.
For commercial paper, D&P uses the short-term debt ratings described above.
For commercial paper, Fitch uses the short-term debt ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the four investment grade ratings used by
BankWatch for long-term debt:
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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 ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the three highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A -- Obligations supported by a good capacity for timely repayment.
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Prospectus
INVESTOR D SHARES
JULY 31, 1996
This Prospectus describes the investment portfolios
(each a "Fund" and collectively, the "Money Market
Funds"), listed in the column to the right, of
Nations Fund Trust and Nations Fund, Inc., each an
open-end management investment company in the
Nations Fund Family ("Nations Fund" or "Nations
Fund Family"). This Prospectus describes one class
of shares of each Money Market Fund -- Investor D
Shares.
EACH MONEY MARKET FUND SEEKS TO MAINTAIN A NET
ASSET VALUE OF $1.00 PER SHARE. INVESTMENTS IN THE
FUNDS ARE NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT
THE FUNDS WILL BE ABLE TO MAINTAIN A STABLE NET
ASSET VALUE OF $1.00 PER SHARE.
This Prospectus sets forth concisely the
information about the Funds that a prospective
purchaser of Investor D Shares should consider
before investing. Investors should read this
Prospectus and retain it for future reference.
Additional information about Nations Fund Trust and
Nations Fund, Inc., each an open-end management
investment company, is contained in separate
Statements of Additional Information (the "SAIs"),
that have been filed with the Securities and
Exchange Commission (the "SEC") and are available
upon request without charge by writing or calling
Nations Fund at its address or telephone number
shown below. The SAIs bear the same date as this
Prospectus and are incorporated by reference in
their entirety into this Prospectus. NationsBanc
Advisors, Inc. ("NBAI") is the investment adviser
to the Funds. TradeStreet Investment Associates,
Inc. ("TradeStreet") is sub-investment adviser to
the Funds. As used herein the "Adviser" shall mean
NBAI and/or TradeStreet as the context may require.
SHARES OF NATIONS FUND ARE NOT DEPOSITS OR OTHER
OBLIGATIONS OF, OR ISSUED, ENDORSED OR GUARANTEED
BY, NATIONSBANK, N.A. ("NATIONSBANK") OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT INSURED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY. AN INVESTMENT IN THE FUNDS
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
NATIONSBANK AND CERTAIN OF ITS AFFILIATES PROVIDE
CERTAIN OTHER SERVICES TO NATIONS FUND, FOR WHICH
THEY ARE COMPENSATED. STEPHENS INC., WHICH IS NOT
AFFILIATED WITH NATIONSBANK, IS THE SPONSOR AND
ADMINISTRATOR AND SERVES AS THE DISTRIBUTOR FOR
NATIONS FUND.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Nations Prime Fund
Nations Treasury Fund
Nations Government
Money Market Fund
Nations Tax Exempt
Fund
For Fund information call:
1-800-321-7854
Nations Fund
c/o Stephens Inc.
One NationsBank Plaza
33rd Floor
Charlotte, NC 28255
NATIONS FUND LOGO
<PAGE>
Table Of Contents
About The Funds
Prospectus Summary 3
Expenses Summary 4
Financial Highlights 5
Objectives 8
How Objectives Are Pursued 8
How Performance Is Shown 11
How the Funds Are Managed 11
Organization And History 15
About Your Investment
How To Buy Shares 16
Shareholder Servicing And Distribution Plans 18
How To Redeem Shares 19
How To Exchange Shares 20
How The Funds Value Their Shares 21
How Dividends And Distributions Are Made; Tax
Information 22
Appendix A -- Portfolio Securities 23
Appendix B -- Description Of Ratings 30
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS PROSPECTUS, OR IN THE FUNDS' SAIS
INCORPORATED HEREIN BY REFERENCE, IN CONNECTION
WITH THE OFFERING MADE BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NATIONS FUND OR ITS DISTRIBUTOR. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFERING BY NATIONS FUND OR
BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE.
2
<PAGE>
About The Funds
Prospectus Summary
(Bullet) TYPE OF COMPANIES: Open-end management investment companies.
(Bullet) INVESTMENT OBJECTIVES AND POLICIES:
(Bullet) Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with
the preservation of capital and the maintenance of liquidity.
(Bullet) Nations Treasury Fund's investment objective is the
maximization of current income to the extent
consistent with the preservation of capital and the
maintenance of liquidity.
(Bullet) Nations Government Money Market Fund's investment objective
is to seek as high a level of current income as is consistent
with liquidity and stability of principal.
(Bullet) Nations Tax Exempt Fund's investment objective is to seek as
high a level of current interest income exempt from Federal
income taxes as is consistent with liquidity and stability of
principal.
(Bullet) INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as the investment
adviser to the Funds. NBAI provides investment advice to more than 43
investment company portfolios in the Nations Fund Family. TradeStreet
Investment Associates, Inc. provides sub-advisory services to the
Funds. See "How The Funds Are Managed."
(Bullet) DIVIDENDS AND DISTRIBUTIONS: Nations Prime Fund, Nations Treasury Fund,
Nations Government Money Market Fund and Nations Tax Exempt Fund
declare dividends daily and pay them monthly. Each Fund's net realized
capital gains, including net short-term capital gains, are distributed
at least annually.
(Bullet) RISK FACTORS: Although the Adviser seeks to achieve the investment
objective of each Fund, there is no assurance that it will be able to
do so. Although each Fund seeks to maintain a stable net asset value of
$1.00 per share, there is no assurance that it will be able to do so.
Investments in a Fund are not insured against loss of principal. For a
discussion of these and other factors, see "How Objectives Are
Pursued -- Risk Considerations" and "Appendix A -- Portfolio
Securities."
(Bullet) MINIMUM PURCHASE: $1,000 minimum initial investment per record holder
except that the minimum initial investment is: $500 for Individual
Retirement Account ("IRA") investors; $250 for non-working spousal
IRAs; and $100 for investors participating on a monthly basis in the
Systematic Investment Plan. There is no minimum investment amount for
investments by certain 401(k) and employee pension plans or salary
reduction -- Individual Retirement Accounts. The minimum subsequent
investment is $100, except for investments pursuant to the Systematic
Investment Plan. Investor C Shares exchanged for Investor D Shares must
have a current value of at least $1,000. See "How To Buy Shares."
3
<PAGE>
Expenses Summary
Expenses are one of several factors to consider when investing in the Funds. The
following table summarizes shareholder transaction and operating expenses for
Investor D Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
<TABLE>
<CAPTION>
Nations
Nations Nations Treasury Government Money
SHAREHOLDER TRANSACTION EXPENSES Prime Fund Fund Market Fund
<S> <C> <C> <C>
Sales Load Imposed on Purchases None None None
Deferred Sales Charge .00%(1) .00%(1) .00%(1)
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Sales Load Imposed on Purchases None
Deferred Sales Charge .00%(1)
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
Nations
Nations Nations Treasury Government Money
Prime Fund Fund Market Fund
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .14% .14% .12%
Rule 12b-1 Fees (After Fee Waivers) .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .16% .16% .18%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .80% .80% .80%
</TABLE>
<TABLE>
<CAPTION>
Nations
Tax Exempt
Fund
<S> <C>
Management Fees (After Fee Waivers) .13%
Rule 12b-1 Fees (After Fee Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .17%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .80%
</TABLE>
1 Shares acquired through an exchange remain subject to the contingent deferred
sales charge ("CDSC") schedule applicable to the shares exchanged. See "How To
Buy Shares" and "How To Sell Shares -- Contingent Deferred Sales Charge"
below.
EXAMPLES:
You would pay the following expenses on a $1,000 investment in Investor D Shares
of the indicated Fund, assuming (1) a 5% annual return and (2) redemption at the
end of each time period.
<TABLE>
<CAPTION>
Nations
Nations Nations Government
Prime Treasury Money
Fund Fund Market Fund
<S> <C> <C> <C>
1 Year $ 8 $ 8 $ 8
3 Years $26 $26 $26
</TABLE>
<TABLE>
<CAPTION>
Nations
Tax Exempt
Fund
<S> <C>
1 Year $ 8
3 Years $26
</TABLE>
The purpose of the foregoing table is to assist an investor in understanding the
various shareholder transaction and operating expenses that an investor in each
Fund will bear either directly or indirectly. Because Investor D Shares were not
offered during the Funds' most recent fiscal year, the "Other Expenses" figures
contained in the above table are based on estimated amounts for the Funds'
current fiscal year and reflect anticipated fee waivers and reimbursements.
There is no assurance that these fee waivers and reimbursements will continue
beyond the current fiscal year. If fee waivers and/or reimbursements are
discontinued, the amounts contained in the "Examples" above may increase. Long-
term shareholders in a Fund could pay more in sales charges than the economic
equivalent of the maximum front-end sales charges applicable to mutual funds
sold by members of the National Association
4
<PAGE>
of Securities Dealers, Inc. For more complete descriptions of the Funds'
operating expenses, see "How The Funds Are Managed."
Absent fee waivers and expense reimbursements, "Management Fees," "Rule 12b-1
Fees" and "Total Operating Expenses" for Investor D Shares of the indicated
Fund would be as follows: Nations Prime Fund -- .20%, .45% and 1.06%,
respectively; Nations Treasury Fund -- .20%, .45% and 1.06%,
respectively; Nations Government Money Market Fund -- .40%, .45% and
1.28%, respectively; and Nations Tax Exempt Fund -- .40%, .45% and 1.27%,
respectively.
THE FOREGOING SHOULD NOT BE CONSIDERED TO BE AN ACTUAL REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES AND RATES OF RETURN MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Financial Highlights
The audited and, where indicated, unaudited financial information on the
following pages has been derived from the financial statements of Nations Fund
Trust and Nations Fund, Inc. Price Waterhouse LLP is the independent accountant
to Nations Fund Trust and Nations Fund, Inc. The reports of Price Waterhouse LLP
for the most recent fiscal years of Nations Fund Trust and Nations Fund, Inc.
accompany the financial statements for such periods and are incorporated by
reference in the SAIs, which are available upon request. Shareholders of a Fund
will receive unaudited semi-annual reports describing the Fund's investment
operations and annual financial statements audited by the Funds' independent
accountant.
FOR AN INVESTOR D SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR D SHARES 03/31/96(a) 05/31/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0439 0.0173
Distributions from net investment income (0.0439) (0.0173)
Total dividends and distributions $ (0.0439) $ (0.0173)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 4.49% 1.74%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 40 $ 2
Ratio of operating expenses to average net assets 0.67%+ 0.55%+
Ratio of net investment income to average net assets 5.25%+ 4.98%+
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.74%+ 0.63%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0434 $ 0.0165
</TABLE>
* Nations Prime Fund Investor D Shares commenced operations on February 9,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
5
<PAGE>
FOR AN INVESTOR D SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR D SHARES 03/31/96(a) 05/31/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0404 0.0167
Distributions from net investment income (0.0404) (0.0167)
Distributions from net realized capital gains -- --
Total dividends and distributions (0.0404) (0.0167)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 4.09% 1.67%
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $ 2 $ 2
Ratio of operating expenses to average net assets 0.64%+ 0.55%+
Ratio of net investment income to average net assets 5.18%+ 4.74%+
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.71%+ 0.60%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0399 $ 0.0162
</TABLE>
* Nations Treasury Fund Investor D Shares commenced operations on February 9,
1995.
+ Annualized.
++ Total return represents aggregate total return for the period
indicated and does not reflect the deduction of any applicable sales
charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
May 31.
6
<PAGE>
FOR AN INVESTOR D SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR D SHARES 03/31/96(a) 11/30/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0157 0.0418
Distributions:
Dividends from net investment income (0.0157) (0.0418)
Total dividends and distributions (0.0157) (0.0418)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 1.58% 4.38%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2 $ 2
Ratio of operating expenses to average net assets 0.71%+ 0.55%+
Ratio of net investment income to average net assets 4.79%+ 5.33%+
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 1.00%+ 0.82%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0147 $ 0.0397
</TABLE>
* Nations Government Money Market Fund Investor D Shares commenced operations
on February 10, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
NATIONS TAX EXEMPT FUND
<TABLE>
<CAPTION>
PERIOD PERIOD
ENDED ENDED
INVESTOR D SHARES 03/31/96(a) 11/30/95*
<S> <C> <C>
Operating performance:
Net asset value, beginning of period $ 1.00 $ 1.00
Net investment income 0.0090 0.0243
Distributions from net investment income (0.0090) (0.0243)
Total dividends and distributions (0.0090) (0.0243)
Net asset value, end of period $ 1.00 $ 1.00
Total return++ 0.91% 2.61%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 2 $ 2
Ratio of operating expenses to average net assets 0.69%+ 0.45%+
Ratio of net investment income to average net assets 2.96%+ 3.47%+
Ratio of operating expenses to average net assets without waivers and/or expense
reimbursements 0.97%+ 0.72%+
Net investment income per share without waivers and/or expense reimbursements $ 0.0081 $ 0.0225
</TABLE>
* Nations Tax Exempt Fund Investor D Shares commenced operations on February
10, 1995.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect the deduction of any applicable sales charges.
(a) Fiscal year end changed to March 31. Prior to this, the fiscal year end was
November 30.
7
<PAGE>
Objectives
Each Money Market Fund endeavors to achieve its investment objective by
investing in a diversified portfolio of high quality money market instruments
with maturities of 397 days or less from the date of purchase. Securities
subject to repurchase agreements may bear longer maturities.
NATIONS PRIME FUND: Nations Prime Fund's investment objective is to seek the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS TREASURY FUND: Nations Treasury Fund's investment objective is the
maximization of current income to the extent consistent with the preservation of
capital and the maintenance of liquidity.
NATIONS GOVERNMENT MONEY MARKET FUND: Nations Government Money Market Fund's
investment objective is to seek as high a level of current income as is
consistent with liquidity and stability of principal.
NATIONS TAX EXEMPT FUND: Nations Tax Exempt Fund's investment objective is to
seek as high a level of current interest income exempt from Federal income taxes
as is consistent with liquidity and stability of principal.
How Objectives Are Pursued
NATIONS PRIME FUND: In pursuing its investment objective, 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 or instrumentalities ("U.S. Government Obligations"), bank and
commercial instruments that may be available in the money markets, high quality
short-term taxable obligations issued by state and local governments, their
agencies and instrumentalities and repurchase agreements relating to U.S.
Government Obligations and qualified First Tier money market collateral. The
Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in guaranteed investment
contracts and 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 or partnerships.
In addition, the Fund may lend its portfolio securities to qualified
institutional investors. For more information concerning these instruments, see
"Appendix A."
NATIONS TREASURY FUND: In pursuing its investment objective, the Fund invests in
U.S. Treasury Obligations and repurchase agreements secured by such obligations.
The Fund also may purchase securities issued by other investment companies,
consistent with the Fund's investment objective and policies, and may engage in
reverse repurchase agreements. The Fund also may invest in obligations the
principal and interest of which are backed by the full faith and credit of the
United States Government, provided that such Fund shall, under normal market
conditions, invest at least 65% of its total assets in U.S. Treasury bills,
notes and bonds and other instruments issued directly by the U.S. Government.
The Fund may lend its portfolio securities to qualified institutional investors.
For more information concerning these instruments, see "Appendix A."
NATIONS GOVERNMENT MONEY MARKET FUND: In pursuing its investment objective, the
Fund invests in U.S. Government Obligations and repurchase agreements relating
to such obligations. The Fund also may purchase securities issued by other
investment companies, consistent with the Fund's investment objective and
policies, and may engage in reverse repurchase agreements. The Fund may lend its
portfolio securities to qualified institutional investors. For
8
<PAGE>
more information concerning these instruments, see "Appendix A."
NATIONS TAX EXEMPT FUND: In pursuing its investment objective, the Fund invests
in a diversified portfolio of obligations issued by or on behalf of states,
territories and possessions of the United States, the District of Columbia, and
their political subdivisions, agencies, instrumentalities and authorities, the
interest on which, in the opinion of counsel to the issuer or bond counsel, is
exempt from regular Federal income tax ("Municipal Securities"). The Fund will
not knowingly purchase securities the interest on which is subject to such tax.
A portion of the Fund's assets, however, may be invested in private activity
bonds, the interest on which may be treated as a specific tax preference item
under the Federal alternative minimum tax. See "How Dividends And Distributions
Are Made; Tax Information."
The Fund invests in Municipal Securities which are determined to present minimal
credit risks and which at the time of purchase are considered to be of "high
quality" -- E.G., rated "AA" or higher by Duff & Phelps Credit Rating Co.
("D&P"), Fitch Investors Service, Inc. ("Fitch"), Standard & Poor's Corporation
("S&P"), IBCA Limited or its affiliate IBCA Inc. (collectively "IBCA"), or
Thomson BankWatch, Inc. ("BankWatch") or Aa or higher by Moody's Investors
Service, Inc. ("Moody's"), in the case of bonds; rated "A" or higher by D&P,
Fitch, S&P, IBCA, BankWatch or Moody's in the case of certain bonds which are
unrated securities (I.E., lacking a short-term rating from the requisite number
of nationally recognized statistical rating organizations); rated "D-1" or
higher by D&P, "F-1" or higher by Fitch, "SP-1" by S&P, or "MIG-1" by Moody's in
the case of notes; rated "D-1" or higher by D&P, "F-1" or higher by Fitch, or
"VMIG-1" by Moody's in the case of variable-rate demand notes; or rated "D-1" or
higher by D&P, "F-1" or higher by Fitch, "A-1" or higher by S&P, or "Prime-1" by
Moody's in the case of tax-exempt commercial paper. D&P, Fitch, S&P, Moody's,
IBCA and BankWatch are the six nationally recognized statistical rating
organizations (collectively, "NRSROs"). Securities that are unrated at the time
of purchase will be determined to be of comparable quality by the Adviser
pursuant to guidelines approved by Nations Fund Trust's Board of Trustees. The
applicable Municipal Securities ratings are described in "Appendix B."
The payment of principal and interest on most securities purchased by the Fund
will depend upon the ability of the issuers to meet their obligations. The
District of Columbia, each state, each of their political subdivisions,
agencies, instrumentalities and authorities and each multi-state agency of which
a state is a member is a separate "issuer" as that term is used in this
Prospectus and the related SAI. The non-governmental user of facilities financed
by private activity bonds also is considered to be an "issuer." For more
information concerning Municipal Securities, see "Appendix A -- Municipal
Securities."
The Fund may hold uninvested cash reserves pending investment, during temporary
defensive periods, or if, in the opinion of the Adviser, desirable tax-exempt
obligations are unavailable. Uninvested cash reserves will not earn income. As a
matter of fundamental policy, under normal market conditions, at least 80% of
the Fund's net assets will be invested in Municipal Securities. Investments in
private activity bonds, the interest on which may be treated as a specific tax
preference item under the Federal alternative minimum tax, will not be treated
as Municipal Securities in determining whether the Fund is in compliance with
this 80% requirement. The Fund also may invest in securities issued by other
investment companies that invest in securities consistent with the Fund's
investment objective and policies. The Fund 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 or partnerships. For more information
concerning the Fund's investments, see "Appendix A."
RISK CONSIDERATIONS: Although the Adviser will seek to achieve the investment
objective of each Fund, there is no assurance that it will be able to do so. No
single Fund should be considered, by itself, to provide a complete investment
program for any investor. Investments in a Fund are not insured against loss of
principal. For additional risk information regarding the Funds'
9
<PAGE>
investments in particular instruments, see "Appendix A -- Portfolio Securities."
INVESTMENT LIMITATIONS: The Funds are subject to a number of investment
limitations. The following investment limitations are matters of fundamental
policy and may not be changed with respect to a particular Fund without the
affirmative vote of the holders of a majority of that Fund's outstanding shares.
Other investment limitations that cannot be changed without such a vote of
shareholders are described in the Funds' SAIs.
Each Fund may not:
1. Purchase any securities which would cause 25% or more of the value of the
Fund's total assets at the time of such purchase to be invested in the
securities of one or more issuers conducting their principal activities in the
same industry. (For purposes of this limitation, U.S. Government securities and
tax-exempt securities issued by state or municipal governments and their
political subdivisions are not considered members of any industry. In addition,
this limitation does not apply to investments in obligations of domestic banks.)
2. Make loans, except that a Fund may purchase and hold debt instruments
(whether such instruments are part of a public offering or are privately
placed), may enter into repurchase agreements and may lend portfolio securities
in accordance with its investment policies.
3. Purchase securities of any one issuer (other than securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities) if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in the securities of such issuer, except that up to 25%
of the value of such Fund's total assets may be invested without regard to these
limitations and with respect to 75% of such Fund's assets, such Fund will not
hold more than 10% of the voting securities of any issuer.
In addition, as a matter of non-fundamental policy, Nations Tax Exempt Fund may
not purchase any securities other than obligations the interest on which is
exempt from Federal income tax and stand-by commitments with respect to such
obligations. The investment objectives and policies of the Funds, unless
otherwise specified, may be changed without shareholder approval. If the
investment objective or policies of a Fund change, shareholders should consider
whether the Fund remains an appropriate investment in light of their then
current positions and needs.
In order to register a Fund's shares for sale in certain states, a Fund may make
commitments more restrictive than the investment policies and limitations
described in this Prospectus and the SAIs. Should a Fund determine that any such
commitment is no longer in its best interests, it may consider terminating sales
of its shares in the states involved.
RESTRAINTS ON INVESTMENTS BY MONEY MARKET FUNDS: In order for the Funds to value
their investments on the basis of amortized cost (see "How The Funds Value Their
Shares"), investments must be in accordance with the requirements of Rule 2a-7
under the Investment Company Act of 1940, as amended (the "1940 Act"), some of
which are described below. A Money Market Fund is limited to acquiring
obligations with a remaining maturity of 397 days or less, or obligations with a
remaining maturity of more than 397 days, provided such obligations are subject
to demand features or resets, and to maintaining a dollar-weighted average
portfolio maturity of 90 days or less. Quality requirements generally limit
investments to U.S. dollar denominated instruments determined to present minimal
credit risks and that, at the time of acquisition, are rated in the first or
second rating categories (known as "first tier" and "second tier" securities,
respectively) by the required number of NRSROs (at least two or, if only one
NRSRO has rated the security, that one NRSRO) or, if unrated by any NRSRO, are
(i) comparable in priority and security to a class of short-term securities of
the same issuer that has the required rating, or (ii) determined to be
comparable in quality to securities having the required rating. The
diversification requirements provide generally that a Money Market Fund may not
at the time of acquisition invest more than 5% of its assets in securities of
any one issuer except that up to 25% of total assets may be invested in the
first tier securities of a single issuer for three business days. Additionally,
(except for Nations Tax Exempt Fund) no more than 5% of total assets may be
invested, at the time of acquisition, in second tier securities in the
aggregate, and any investment in second
10
<PAGE>
tier securities of one issuer is limited to the greater of 1% of total assets or
one million dollars. Securities issued by the U.S. Government, its agencies,
authorities or instrumentalities are exempt from the quality requirements, other
than minimal credit risk. In the event that a Fund's investment restrictions or
permissible investments are more restrictive than the requirements of Rule 2a-7,
the Fund's own restrictions will govern.
How Performance Is Shown
From time to time, a Fund may advertise the "yield" and "effective yield" of a
class of shares, and Nations Tax Exempt Fund may advertise the "tax equivalent
yield" of a class of shares. YIELD, EFFECTIVE YIELD AND TAX-EQUIVALENT YIELD
FIGURES ARE BASED ON HISTORICAL DATA AND ARE NOT INTENDED TO INDICATE FUTURE
PERFORMANCE.
The "yield" of a class of shares in a Fund refers to the income generated by an
investment in such class over a seven-day period identified in the
advertisement. This income is then "annualized." That is, the amount of income
generated by the investment during that week is assumed to be generated each
week over a 52-week period and is shown as a percentage of the investment. The
"effective yield" is calculated similarly, but, when annualized, the income
earned by an investment in a class of shares in a Fund is assumed to be
reinvested. The "effective yield" will be slightly higher than the "yield"
because of the compounding effect of this assumed reinvestment. The
"tax-equivalent yield" of each class of shares in Nations Tax Exempt Fund shows
the level of taxable yield needed to produce an after-tax equivalent to such
class's tax-free yield. This is done by increasing the class's yield (calculated
as above) by the amount necessary to reflect the payment of Federal income tax
at a stated tax rate. The tax-equivalent yield will always be higher than the
"yield" of a class of shares in Nations Tax Exempt Fund.
Since yields fluctuate, yield data cannot necessarily be used to compare an
investment in the Funds with bank deposits, savings accounts and similar
investment alternatives which often provide an agreed-upon or guaranteed fixed
yield for a stated period of time. Any fees charged by selling and/or servicing
agents to their customers' accounts for automatic investment or other cash
management services will not be included in calculations of yield.
In addition to Investor D Shares, the Funds offer Primary A, Primary B, Investor
A, Investor B and Investor C Shares. Each class of shares may bear different
sales charges, shareholder servicing fees, loads and other expenses, which may
cause the performance of a class to differ from the performance of the other
classes. Performance quotations will be computed separately for each class of
the Funds' shares. The Funds' annual report contains additional performance
information and is available upon request without charge from the Funds'
distributor or an investor's selling agent.
How The Funds Are Managed
The business and affairs of each of Nations Fund Trust and Nations Fund, Inc.
are managed under the direction of its Board of Trustees and Board of Directors,
respectively. Nations Fund Trust's SAI contains the names of and general
background information concerning each Trustee of Nations Fund Trust. Nations
Fund, Inc.'s SAIs contain the names of and general background information
concerning each Director of Nations Fund, Inc.
Nations Fund and the Adviser have adopted codes of ethics which contain policies
on personal securities transactions by "access persons," including portfolio
managers and
invest-
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ment analysts. These policies substantially comply in all material respects with
the recommendations set forth in the May 9, 1994 Report of the Advisory Group on
Personal Investing of the Investment Company Institute.
INVESTMENT ADVISER: NationsBanc Advisors, Inc. serves as investment adviser to
the Funds. NBAI is a wholly owned subsidiary of NationsBank, which in turn is a
wholly owned banking subsidiary of NationsBank Corporation, a bank holding
company organized as a North Carolina corporation. NBAI has its principal
offices at One NationsBank Plaza, Charlotte, North Carolina 28255.
TradeStreet Investment Associates, Inc., with principal offices at One
NationsBank Plaza, Charlotte, North Carolina 28255, serves as sub-investment
adviser to the Funds. TradeStreet is a wholly owned subsidiary of NationsBank.
TradeStreet provides investment management services to individuals, corporations
and institutions.
Subject to the general supervision of Nations Fund Trust's Board of Trustees and
Nations Fund, Inc.'s Board of Directors, and in accordance with each Fund's
investment policies, the Adviser formulates guidelines and lists of approved
investments for each Fund, makes decisions with respect to and places orders for
each Fund's purchases and sales of portfolio securities and maintains records
relating to such purchases and sales. With respect to Nations Tax Exempt Fund,
the Adviser is authorized to allocate purchase and sale orders for portfolio
securities to certain financial institutions, including, in the case of agency
transactions, financial institutions which are affiliated with the Adviser or
which have sold shares in such Fund, if the Adviser believes that the quality of
the transactions and the commission are comparable to what they would be with
other qualified brokerage firms. From time to time, to the extent consistent
with its investment objective, policies and restrictions, each Fund may invest
in securities of companies with which NationsBank has a lending relationship.
For the services provided and expenses assumed pursuant to various Investment
Advisory Agreements, NBAI is entitled to receive advisory fees, computed daily
and paid monthly, at the annual rates of: 0.25% of the first $250 million of the
combined average daily net assets of both Nations Prime Fund and Nations
Treasury Fund, plus 0.20% of the combined average daily net assets of such Funds
in excess of $250 million; and 0.40% of the average daily net assets of each of
Nations Government Money Market Fund and Nations Tax Exempt Fund.
For the services provided and expenses assumed pursuant to sub-advisory
agreements, NBAI will pay TradeStreet sub-advisory fees, computed daily and paid
monthly, at the annual rate of 0.055% of the average daily net assets of each
Fund.
From time to time, NBAI (and/or TradeStreet) may waive or reimburse (either
voluntarily or pursuant to applicable state limitations) advisory fees and/or
expenses payable by a Fund.
For the fiscal period from December 1, 1995 to December 31, 1995, after waivers,
Nations Fund Trust paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from June 1, 1995 to December 31, 1995, after waivers,
Nations Fund, Inc. paid NationsBank under a prior Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Prime Fund -- 0.18%; and Nations Treasury Fund -- 0.18%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund Trust paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily net
assets: Nations Government Money Market Fund -- 0.12%; and Nations Tax Exempt
Fund -- 0.13%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
Nations Fund, Inc. paid NBAI under the current Investment Advisory Agreement
advisory fees at the indicated rates of the following Funds' average daily
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net assets: Nations Prime Fund -- 0.18%; and Nations Treasury Fund -- 0.18%.
For the fiscal period from January 1, 1996 to March 31, 1996, after waivers,
NBAI paid TradeStreet under the current Sub-Advisory Agreement sub-advisory fees
at the indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund -- 0.055%; Nations Tax Exempt Fund -- 0.055%;
Nations Prime Fund -- 0.055%; and Nations Treasury Fund -- 0.055%.
Melinda Allen Crosby is a Product Manager, Municipal Fixed Income Management for
TradeStreet and is Portfolio Manager for Nations Tax Exempt Fund. She has been
Portfolio Manager for Nations Tax Exempt Fund since 1991. She has worked in the
investment community since 1973. Her past experience includes consulting and
municipal credit analysis for NationsBank Capital Markets. Ms. Crosby received a
B.A. in Business Administration from the University of North Carolina at
Charlotte and an M.B.A. from the McColl School of Business, Queens College. She
was a founding member and past president of the Southern Municipal Finance
Society and participated in the establishment of the National Federation of
Municipal Analysts.
Sandra L. Duck is a Product Manager, Money Market Management for TradeStreet and
is Portfolio Manager for Nations Treasury Fund and Nations Government Money
Market Fund. She has been Portfolio Manager for the Funds since 1993. Prior to
assuming her position with TradeStreet, she was Vice President and Portfolio
Manager for the Investment Management Group at NationsBank. Ms. Duck has worked
in the investment community since 1980. Her past experience includes product
management and trading for Interstate/Johnson Lane and First Charlotte
Corporation. Ms. Duck graduated from King's College.
Martha L. Sherman is a Senior Product Manager, Money Market Management for
TradeStreet and is Senior Portfolio Manager for Nations Prime Fund. She has been
Portfolio Manager of the Nations Prime Fund since 1988. Prior to assuming her
position with TradeStreet, she was Vice President and Senior Portfolio Manager
for the Investment Management Group at NationsBank. Ms. Sherman has worked in
the investment community since 1981. Her past experience includes investment
research for William Lowry & Associates. Ms. Sherman received a B.S. in Business
Administration from the University of Texas at Dallas.
Morrison & Foerster LLP, counsel to Nations Fund and special counsel to
NationsBank, has advised Nations Fund and NationsBank that NationsBank and its
affiliates may perform the services contemplated by the Investment Advisory
Agreements 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 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 such services, it is expected that new
agreements would be proposed or entered into with another entity or entities
qualified to perform such services.
OTHER SERVICE PROVIDERS: Stephens Inc. ("Stephens"), with principal offices at
111 Center Street, Little Rock, Arkansas 72201, serves as the administrator of
Nations Fund pursuant to Administration Agreements. Pursuant to the terms of the
Administration Agreements, Stephens provides various administrative and
corporate secretarial services to the Funds, including providing general
oversight of other service providers, office space, utilities and various legal
and administrative services in connection with the satisfaction of various
regulatory requirements applicable to the Funds.
First Data Services Group, Inc. ("First Data"), formerly The Shareholder
Services Group, Inc., a wholly owned subsidiary of First Data Corporation, with
principal offices at One Exchange
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Place, Boston, Massachusetts 02109, serves as the co-administrator of the Funds
pursuant to Co-Administration Agreements. Under the Co-Administration
Agreements, First Data provides various administrative and accounting services
to the Funds, including performing calculations necessary to determine net asset
values and dividends, preparing tax returns and financial statements and
maintaining the portfolio records and certain general accounting records for the
Funds. For the services rendered pursuant to the Administration and
Co-Administration Agreements, Stephens and First Data are entitled to receive a
combined fee at the annual rate of up to 0.10% of each Fund's average daily net
assets. For the fiscal period from December 1, 1995 to March 31, 1996, after
waivers, Nations Fund Trust paid its administrators combined fees at the
indicated rates of the following Funds' average daily net assets: Nations
Government Money Market Fund, Nations Tax Exempt Fund -- 0.09%.
For the fiscal period from June 1, 1995 to March 31, 1996, after waivers,
Nations Fund, Inc. paid its administrator combined fees at the indicated rates
of the following Funds' average daily net assets: Nations Prime Fund -- 0.06%;
and Nations Treasury Fund -- 0.05%.
NationsBank serves as sub-administrator for Nations Fund pursuant to a
Sub-Administration Agreement. Pursuant to the terms of the Sub-Administration
Agreement, NationsBank assists Stephens in supervising, coordinating and
monitoring various aspects of the Funds' administrative operations. For
providing such services, NationsBank shall be entitled to receive a monthly fee
from Stephens based on an annual rate of 0.01% of the Funds' average daily net
assets.
Shares of the Funds are sold on a continuous basis by Stephens, as the Funds'
sponsor and distributor. Stephens is a registered broker-dealer with principal
offices at 111 Center Street, Little Rock, Arkansas 72201. Nations Fund has
entered into distribution agreements with Stephens that provide that Stephens
has the exclusive right to distribute shares of the Funds. Stephens may pay
service fees or commissions to selling agents that assist customers in
purchasing Investor D Shares of the Funds. See "Shareholder Servicing And
Distribution Plans."
NationsBank of Texas, N.A., serves as each Fund's custodian (the "Custodian").
The Custodian is located at 1401 Elm Street, Dallas, Texas 75202 and is a wholly
owned subsidiary of NationsBank Corporation. In return for providing custodial
services, the Custodian is entitled to receive, in addition to out-of-pocket
expenses, fees payable monthly (i) at the rate of 1.25% of 1% of the average
daily net assets of each Fund, (ii) $10.00 per repurchase collateral transaction
by the Funds, and (iii) $15.00 per purchase, sale and maturity transaction
involving the Funds.
First Data serves as transfer agent (the "Transfer Agent") for each Fund's
Investor D Shares. The Transfer Agent is located at One Exchange Place, Boston,
Massachusetts 02109.
Price Waterhouse LLP serves as independent accountant to Nations Funds. Its
address is 160 Federal Street, Boston, Massachusetts 02110.
EXPENSES: The accrued expenses of each Fund, as well as certain expenses
attributable to Investor D Shares, are deducted from accrued income before
dividends are declared. The Funds' expenses include, but are not limited to:
fees paid to the Adviser, NationsBank, Stephens and First Data; interest;
Directors' or Trustees' fees; federal and state securities registration and
qualification fees; brokerage fees and commissions; costs of preparing and
printing prospectuses for regulatory purposes and for distribution to existing
shareholders; charges of the Custodian and Transfer Agent; certain insurance
premiums; outside auditing and legal expenses; costs of shareholder reports and
shareholder meetings; other expenses which are not expressly assumed by the
Adviser, NationsBank, Stephens or First Data under their respective agreements
with Nations Fund; and any extraordinary expenses. Investor D Shares may bear
certain class specific retail transfer agency expenses and also bear certain
additional shareholder service and distribution costs. Any general expenses of
Nations Fund Trust and/or of Nations Fund, Inc. that are not readily
identifiable as belonging to a particular investment
14
<PAGE>
portfolio are allocated among all portfolios in the proportion that the assets
of a portfolio bears to the assets of Nations Fund Trust and/or of Nations Fund,
Inc. or in such other manner as the Board of Trustees or Board of Directors
deems appropriate.
Organization And History
The Funds are members of the Nations Fund Family, which consists of Nations Fund
Trust, Nations Fund, Inc., Nations Fund Portfolios, Inc. and Nations
Institutional Reserves. The Nations Fund Family currently has more than 43
distinct investment portfolios and total assets in excess of $18 billion.
NATIONS FUND TRUST: Nations Fund Trust was organized as a Massachusetts business
trust on May 6, 1985. Nations Fund Trust's fiscal year end is March 31; prior to
1996, Nations Fund Trust's fiscal year end was November 30. The Funds currently
offer six separate classes of shares -- Investor A, Investor B, Investor C,
Investor D, Primary A and Primary B Shares. This Prospectus relates only to the
Investor D Shares of Nations Government Money Market Fund and Nations Tax Exempt
Fund of Nations Fund Trust. To obtain additional information regarding the
Funds' other classes of shares which may be available to you, contact your
Selling Agent (as defined below) or Nations Fund at 1-800-321-7854.
Each share of Nations Fund Trust is without par value, represents an equal
proportionate interest in the related fund with other shares of the same class,
and is entitled to such dividends and distributions out of the income earned on
the assets belonging to such fund as are declared in the discretion of Nations
Fund Trust's Board of Trustees. Nations Fund Trust's Declaration of Trust
authorizes the Board of Trustees to classify or reclassify any class of shares
into one or more series of shares.
Shareholders are entitled to one vote for each full share held and a
proportionate fractional vote for each fractional share held. Shareholders of
each fund of Nations Fund Trust will vote in the aggregate and not by fund and
shareholders of a fund will vote in the aggregate and not by class except as
otherwise expressly required by law or when the Board of Trustees determines
that the matter to be voted on affects only the interests of shareholders of a
particular fund or class. See the SAI for examples of instances where the 1940
Act requires voting by fund.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose or vote with respect to more than 25% of the outstanding shares of
Nations Fund Trust and therefore could be considered to be a controlling person
of Nations Fund Trust for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series of shares over
which NationsBank and its affiliates possessed or shared power to dispose or
vote as of a certain date, see Nations Fund Trust's SAI.
Nations Fund Trust does not presently intend to hold annual meetings except as
required by the 1940 Act. Shareholders will have the right to remove trustees.
Nations Fund Trust's Code of Regulations provides that special meetings of
shareholders shall be called at the written request of the shareholders entitled
to vote at least 10% of the outstanding shares of Nations Fund Trust entitled to
be voted at such meeting.
NATIONS FUND, INC.: Nations Fund, Inc. was incorporated in Maryland on December
13, 1983, but had no operations prior to December 15, 1986. Nations Fund, Inc.'s
fiscal year end is March 31; prior to 1996, Nations Fund, Inc.'s fiscal year end
was May 31. As of the date of this Prospectus, the authorized capital stock of
Nations Fund, Inc. consists of 270,000,000,000 shares of common stock, par value
of $.001 per share, which are divided into series or portfolios, each of which
consists of separate classes of shares. This Prospectus relates only to the
Investor D Shares of Nations Prime Fund and Nations Treasury Fund of Nations
Fund, Inc. To
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<PAGE>
obtain additional information regarding the Funds' other classes of shares which
may be available to you, contact your Selling Agent (as defined below) or
Nations Fund at 1-800-321-7854.
Shares of each fund and class have equal rights with respect to voting, except
that the holders of shares of a particular fund or class will have the exclusive
right to vote on matters affecting only the rights of the holders of such fund
or class. In the event of dissolution or liquidation, holders of each class will
receive pro rata, subject to the rights of creditors, (a) the proceeds of the
sale of that portion of the assets allocated to that class held in the
respective fund of Nations Fund, Inc., less (b) the liabilities of Nations Fund,
Inc. attributable to the respective fund or class or allocated among the funds
or classes based on the respective liquidation value of each fund or class.
Shareholders of Nations Fund, Inc. do not have cumulative voting rights, and
therefore the holders of more than 50% of the outstanding shares of all funds
voting together for election of Directors may elect all of the members of the
Board of Directors of Nations Fund, Inc. Meetings of shareholders may be called
upon the request of 10% or more of Nations Fund, Inc.'s outstanding shares.
There are no preemptive rights applicable to any of Nations Fund, Inc.'s shares.
Nations Fund, Inc.'s shares, when issued, will be fully paid and non-assessable.
As of July 15, 1996, NationsBank and its affiliates possessed or shared power to
dispose of or vote with respect to more than 25% of the outstanding shares of
Nations Fund, Inc. and therefore could be considered to be a controlling person
of Nations Fund, Inc. for purposes of the 1940 Act. For more detailed
information concerning the percentage of each class or series over which
NationsBank and its affiliates possessed or shared power to dispose or vote as
of a certain date, see Nations Fund, Inc.'s SAI. It is anticipated that Nations
Fund, Inc. will not hold annual shareholder meetings, except when required by
the 1940 Act or Maryland law.
Because this Prospectus combines disclosure on two separate investment
companies, there is a possibility that one investment company might become
liable for a misstatement, inaccuracy or incomplete disclosure in this
Prospectus concerning the other investment company. Nations Fund Trust and
Nations Fund, Inc. have entered into an indemnification agreement that creates a
right of indemnification from the investment company responsible for any such
misstatement, inaccuracy or incomplete disclosure that may appear in this
Prospectus.
About Your Investment
How To Buy Shares
The Funds have established various procedures for purchasing Investor D Shares
in order to accommodate different investors. Purchase orders may be placed
through banks, broker/dealers or other financial institutions (including certain
affiliates of NationsBank) that have entered into sales support agreements
("Sales Support Agreements") with Stephens ("Selling Agents").
There is a minimum initial investment of $1,000, except that the minimum initial
investment is:
(Bullet) $500 for IRA investors;
(Bullet) $250 for non-working spousal IRAs; and
(Bullet) $100 for investors participating on a monthly basis in the Systematic
Investment Plan described below.
There is no minimum investment amount for investments by 401(k) plans,
simplified employee pension plans ("SEPs"), salary reduction-simplified employee
pension plans ("SAR-SEPs") or salary reduction-Individual
Retire-
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<PAGE>
ment Accounts ("SAR-IRAs"). However, the assets of such plans must reach an
asset value of $1,000 ($500 for SEPs, SAR-SEPs and SAR-IRAs) within one year of
the account open date. If the assets of such plans do not reach the minimum
asset size within one year, Nations Fund reserves the right to redeem the shares
held by such plans on 60 days' written notice. The minimum subsequent investment
is $100, except for investments pursuant to the Systematic Investment Plan
described below.
Shares acquired through an exchange of Investor C Shares of a non-money market
fund must have a current value of at least $1,000. No sales load or exchange fee
is imposed upon the purchase of Investor D Shares of a Fund through an exchange.
Purchases may be effected only on days on which the Federal Reserve Bank of New
York is open for business (a "Business Day").
The Selling Agents have entered into Sales Support Agreements with Stephens
under which they will provide sales support assistance to their Customers who
own Investor D Shares. In addition, the Servicing Agents have entered into
shareholder servicing agreements ("Servicing Agreements") under which they will
provide various shareholder services for their Customers who own Investor D
Shares ("Servicing Agents"). Selling Agents and Servicing Agents are sometimes
referred to hereafter as "Agents." From time to time the Agents, Stephens, and
Nations Fund may agree to voluntarily reduce the fees payable for shareholder
services and sales support services. See "Shareholder Servicing And Distribution
Plans."
Nations Fund reserves the right to reject any purchase order. The issuance of
Investor D Shares is recorded on the books of the Funds, and share certificates
are not issued unless expressly requested in writing. Certificates are not
issued for fractional shares.
EFFECTIVE TIME OF PURCHASES: Purchases will be effected only when federal funds
are available for investment on the Business Day the purchase order is received
by Stephens or by the Transfer Agent. A purchase order must be received by
Stephens or by the Transfer Agent by 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund). Absent prior arrangement with Stephens or the Transfer Agent,
purchase orders received after such time on any given day will not be accepted;
notice thereof will be given to the Selling Agent transmitting the order, and
any funds received will be returned promptly to the sending Selling Agent. Any
late purchase orders that are not rejected pursuant to such a prior arrangement
will be executed on the following Business Day. If federal funds are not
available by 4:00 p.m., Eastern time, the order will be canceled. Investor D
Shares are purchased at the net asset value per share next determined after
receipt of the order by Stephens or by the Transfer Agent.
The Selling Agents are responsible for transmitting orders for purchases by
their Customers and delivering required funds on a timely basis. Stephens is
responsible for transmitting orders it receives to Nations Fund.
TELEPHONE TRANSACTIONS: An investor may effect purchases, redemptions (up to
$50,000) and exchanges by telephone. See "How To Redeem Shares" and "How To
Exchange Shares" below. If a shareholder desires to elect the telephone
transaction feature after opening an account, a signature guarantee will be
required. Shareholders should be aware that by using the telephone transaction
feature such shareholders may be giving up a measure of security that they may
have if they were to authorize written requests only. A Shareholder may bear the
risk of any resulting losses from a telephone transaction. Nations Fund will
employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and if Nations Fund and its service providers fail to
employ such measures, they may be liable for any losses due to unauthorized or
fraudulent instructions. Nations Fund requires a form of personal identification
prior to acting upon instructions received by telephone and provides written
confirmation to shareholders of each telephone share transaction. In addition,
Nations Fund reserves the right to record all telephone conversations.
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Shareholder Servicing And
Distribution Plans
SHAREHOLDER SERVICING PLAN: The Funds' shareholder servicing plan ("Servicing
Plan") permits each Fund to compensate Servicing Agents for certain shareholder
support services that are provided by the Servicing Agents to their Customers
that own Investor D Shares. Payments under the Servicing Plan will be calculated
daily and paid monthly at a rate set from time to time by the Board of Trustees
or the Board of Directors, provided that the annual rate may not exceed 0.25% of
the average daily net asset value of a Fund's Investor D Shares. The shareholder
services provided by Servicing Agents may include general shareholder liaison
services; processing purchase, exchange and redemption requests from Customers
and placing orders with Stephens or the Transfer Agent; processing dividend and
distribution payments from a Fund on behalf of Customers; providing sales
information periodically to Customers, including information showing their
positions in Investor D Shares; providing sub-accounting with respect to
Investor D Shares beneficially owned by Customers or the information necessary
for sub-accounting; responding to inquiries from Customers concerning their
investment in Investor D Shares; arranging for bank wires; and providing such
other similar services as may be reasonably requested.
Nations Fund may suspend or reduce payments under the Servicing Plan at any
time, and payments are subject to the continuation of the Funds' Servicing Plan
described above and the terms of the Servicing Agreements. See the SAIs for more
details on the Servicing Plan.
DISTRIBUTION PLAN: Pursuant to Rule 12b-1 under the 1940 Act, the Trustees and
Directors also have approved a Distribution Plan with respect to Investor D
Shares of the Funds. Pursuant to the Distribution Plan, each Fund may compensate
or reimburse Stephens for any activities or expenses primarily intended to
result in the sale of Investor D Shares. Payments under the Distribution Plan
will be calculated daily and paid monthly at a rate or rates set from time to
time by the Board of Trustees or Board of Directors provided that the annual
rate may not exceed 0.45% of the average daily net asset value of a Fund's
Investor D Shares. Payments to Stephens pursuant to the Distribution Plan will
be used primarily to compensate or reimburse Stephens for distribution services
provided by Stephens and related expenses incurred by Stephens, including
payments by Stephens to compensate or reimburse Selling Agents for sales support
services provided, and related expenses incurred by, such Selling Agents.
Nations Fund and Stephens may suspend or reduce payments under the Distribution
Plan at any time, and payments are subject to the continuation of the Funds'
Distribution Plan described above and the terms of the Sales Support Agreement
between Selling Agents and Stephens. See the SAIs for more details on the
Distribution Plan.
Nations Fund understands that Selling Agents and/or Servicing Agents may charge
fees to their Customers who are the owners of Investor D Shares for various
services provided in connection with a Customer's account. These fees would be
in addition to any amounts received by a Selling Agent under its Sales Support
Agreement with Stephens or by a Servicing Agent under its Shareholder Servicing
Agreement with Nations Fund. The Sales Support Agreements and Shareholder
Servicing Agreements require Agents to disclose to their Customers any
compensation payable to the Agents by Stephens or Nations Fund and any other
compensation payable by the Customers for various services provided in
connection with their accounts. Customers of Agents should read this Prospectus
in light of the terms governing their accounts with their Agents.
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<PAGE>
How To Redeem Shares
Redemption orders should be transmitted by telephone or in writing through the
same Selling Agent that transmitted the original purchase order. Redemption
orders are effected at the net asset value per share, less any applicable CDSC,
next determined after receipt of the order by Stephens or by the Transfer Agent.
The Selling Agents are responsible for transmitting redemption orders to
Stephens or to the Transfer Agent and for crediting their Customers' accounts
with the redemption proceeds on a timely basis. No charge for wiring redemption
payments is imposed by Nations Fund.
Redemption orders must be received on a Business Day before 3:00 p.m., Eastern
time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), and payment will normally be wired the
same day to Selling Agents. Nations Fund reserves the right to wire redemption
proceeds within three Business Days after receiving the redemption orders if, in
the judgment of NationsBank, an earlier payment could adversely impact a Fund.
However, redemption proceeds for shares purchased by check may not be remitted
until at least 15 days after the date of purchase to ensure that the check has
cleared; a certified check, however, is deemed to be cleared immediately.
Redemption orders received by Stephens or by the Transfer Agent after 3:00 p.m.,
Eastern time (12:00 noon, Eastern time, with respect to Nations Tax Exempt Fund
and Nations Government Money Market Fund), will be processed on the next
Business Day.
Nations Fund may redeem a shareholder's Investor D Shares upon 60 days' written
notice if the balance in the shareholder's account drops below $500 as a result
of redemptions. Share balances also may be redeemed at the direction of a
Selling Agent pursuant to arrangements between the Selling Agent and its
Customers. Nations Fund also may redeem shares of a Fund involuntarily or make
payment for redemption in readily marketable securities or other property under
certain circumstances in accordance with the 1940 Act.
Prior to effecting a redemption of Investor D Shares represented by
certificates, the Transfer Agent must have received such certificates at its
principal office. All such certificates must be endorsed by the redeeming
shareholder or accompanied by a signed stock power, in each instance with the
signature guaranteed by a commercial bank or a member of a major stock exchange,
unless other arrangements satisfactory to Nations Fund have previously been
made. Nations Fund may require any additional information reasonably necessary
to evidence that a redemption has been duly authorized.
CONTINGENT DEFERRED SALES CHARGE: Subject to certain waivers specified below,
Investor D Shares of a Fund that were purchased prior to January 1, 1996 will be
subject to a CDSC of 1.00% if redeemed within one year of the initial purchase
of the Investor C Shares exchanged for the Investor D Shares being redeemed.
Investor D Shares purchased after January 1, 1996 through an exchange from
Investor C Shares will be subject to a CDSC of .50% if redeemed within one year
of the initial purchase of the Investor C Shares exchanged. Investor D Shares
purchased directly are not subject to a CDSC. The CDSC is imposed on the lesser
of the net asset value of the Investor D Shares redeemed or the initial purchase
price of the Investor C Shares exchanged to acquire the Investor D Shares being
redeemed. No CDSC is imposed on increases in net asset value above the initial
purchase price of the exchanged Investor C Shares, including shares acquired by
reinvestment of distributions.
Solely for purposes of determining the period of time that has elapsed from the
initial purchase of any Investor C Shares, all purchases are deemed to have been
on the trade date of the transaction. In determining whether a CDSC is
applicable to a redemption, the calculation will be made in the manner that
results in the lowest possible charge being assessed. In this regard, it
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<PAGE>
will be assumed that the redemption is first of shares held for the longest
period of time or shares acquired pursuant to reinvestment of dividends or
distributions. The charge will not be applied to dollar amounts representing an
increase in the net asset value since the time of initial purchase of Investor C
Shares.
The CDSC will be waived on redemptions of Investor D Shares (i) following the
death or disability (as defined in the Internal Revenue Code of 1986 (the
"Code")) of a shareholder (including a registered joint owner), (ii) in
connection with the following retirement plan distributions: (a) by qualified
plans, (except in cases of plan level terminations), (b) distributions from an
IRA following attainment of age 59 1/2; (c) a tax-free return of an excess
contribution to an IRA, and (d) distributions from a qualified retirement plan
that are not subject to the 10% additional Federal withdrawal tax pursuant to
Section 72(t)(2) of the Code, (iii) effected pursuant to Nations Fund's right to
liquidate a shareholder's account, including instances where the aggregate net
asset value of the Investor D Shares held in the account is less than the
minimum account size, (iv) in connection with the combination of Nations Fund
with any other registered investment company by merger, acquisition of assets or
by any other transaction, and (v) effected pursuant to the Automatic Withdrawal
Plan discussed below, provided that such redemptions do not exceed, on an annual
basis, 12% of the net asset value of the Investor Shares in the account.
Shareholders are responsible for providing evidence sufficient to establish that
they are eligible for any waiver of the CDSC. Nations Fund may terminate any
waiver of the CDSC by providing notice in the Prospectus, but any such
termination would affect only shares purchased after such termination.
Within 120 days after a redemption of Investor D Shares of a Fund, a shareholder
may reinvest any portion of the proceeds of such redemption in Investor D Shares
of the same Fund. The amount which may be so reinvested is limited to an amount
up to, but not exceeding, the redemption proceeds (or to the nearest full share
if fractional shares are not purchased). A shareholder exercising this privilege
would receive a pro rata credit for any CDSC paid in connection with the prior
redemption. A shareholder may not exercise this privilege with the proceeds of a
redemption of shares previously purchased through the reinvestment privilege. In
order to exercise this privilege, a written order for the purchase of Investor A
Shares must be received by the Transfer Agent or by Stephens within 120 days
after the redemption.
AUTOMATIC WITHDRAWAL PLAN: An Automatic Withdrawal Plan ("AWP") may be
established by a shareholder of a Fund if the value of the Investor Shares in
his/her accounts within the Nations Fund Family (valued at the net asset value
at the time of the establishment of the AWP) equals $10,000 or more.
Shareholders who elect to establish an AWP may receive a monthly, quarterly or
annual check or automatic transfer to a checking or savings account in a stated
amount of not less than $25 on or about the 10th or 25th day of the applicable
month of withdrawal. Investor D Shares will be redeemed as necessary to meet
withdrawal payments. Withdrawals will reduce principal and may eventually
deplete the shareholder's account. If a shareholder desires to establish an AWP
after opening an account, a signature guarantee will be required. An AWP may be
terminated by a shareholder on 30 days' written notice to his/her Selling Agent
or by Nations Fund at any time.
How To Exchange Shares
The exchange feature enables a shareholder of Investor D Shares of a Money
Market Fund to exchange such shares for Investor C Shares of a Non-Money Market
Fund or Investor D Shares of another Money Market Fund when that shareholder
believes that a shift between funds is an appropriate investment decision. An
exchange of Investor D Shares for shares of another fund is made on the basis of
the next
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calculated net asset value per share of each fund after the exchange order is
received.
No CDSC will be imposed in connection with an exchange of Investor D Shares that
meets the requirements discussed in this section. If a shareholder acquires
shares in exchange for Investor D Shares of a Fund, the acquired shares will
remain subject to the CDSC applicable to the Investor C Shares exchanged to
acquire the subject Investor D Shares. In addition, the remaining period of time
(if any) that the CDSC will be in effect will be computed from the time of the
initial purchase of the previously held Investor C Shares.
The Funds and each of the other funds of Nations Fund may limit the number of
times this exchange feature may be exercised by a shareholder within a specified
period of time. Also, the exchange feature may be terminated or revised at any
time by Nations Fund upon such notice as may be required by applicable
regulatory agencies (presently sixty days for termination or material revision),
provided that the exchange feature may be terminated or materially revised
without notice under certain unusual circumstances.
The current prospectus for each fund of Nations Fund describes its investment
objective and policies, and shareholders should obtain a copy and examine it
carefully before investing. Exchanges are subject to the minimum investment
requirement and any other conditions imposed by each fund. In the case of any
shareholder holding a share certificate or certificates, no exchanges may be
made until all applicable share certificates have been received by the Transfer
Agent and deposited in the shareholder's account. An exchange will be treated
for Federal income tax purposes the same as a redemption of shares, on which the
shareholder may realize a capital gain or loss. However, the ability to deduct
capital losses on an exchange may be limited in situations where there is an
exchange of shares within ninety days after the shares are purchased.
Nations Fund reserves the right to reject any exchange request. Only shares that
may legally be sold in the state of the investor's residence may be acquired in
an exchange. Only shares of a class that is accepting investments generally may
be acquired in an exchange.
Investor D Shares may be exchanged by directing a request directly to the Agent
through which the original Investor D Shares were purchased or in some cases
Stephens or the Transfer Agent. During periods of significant economic or market
change, telephone exchanges may be difficult to complete. In such event, shares
may be exchanged by mailing your request directly to the Agent through which the
original shares were purchased. Investors should consult their Agent or Stephens
for further information regarding exchanges. Your exchange feature may be
governed by your account agreement with your Agent.
How The Funds Value Their Shares
The net asset value of a share of each class of shares in the Funds is
calculated by dividing the total value of its assets, less liabilities, by the
number of shares in the class outstanding. Shares are valued as of 3:00 p.m.,
Eastern time (12 noon, Eastern time, with respect to Nations Tax Exempt Fund and
Nations Government Money Market Fund), on each Business Day. Currently, the days
on which the Federal Reserve Bank of New York is closed (other than weekends)
are: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Memorial Day
(observed), Independence Day, Labor Day, Columbus Day, Thanksgiving Day and
Christmas Day.
The assets of each Fund are valued based upon the amortized cost method.
Although Nations Fund seeks to maintain the net asset value per share of these
Funds at $1.00, there can be no assurance that their net asset value per share
will not vary.
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How Dividends And Distributions Are
Made; Tax Information
DIVIDENDS AND DISTRIBUTIONS: Dividends from net investment income of each Fund
are declared daily to shareholders at 3:00 p.m., Eastern time (12 noon, Eastern
time, with respect to Nations Tax Exempt Fund and Nations Government Money
Market Fund), on the day of declaration. Investor D Shares begin earning
dividends on the day the purchase order is executed and continue earning
dividends through and including the day before the redemption order is executed
(E.G., the settlement date). Dividends are paid within five Business Days after
the end of each month. Dividends are paid in the form of additional Investor D
Shares of the same Fund unless the Customer has elected prior to the date of
distribution to receive payment in cash. Such election, or any revocation
thereof, must be made in writing to the Funds' Transfer Agent and will become
effective with respect to dividends paid after its receipt. Your dividend
election may be governed by your account agreement with your Selling Agent.
Dividends are paid in cash within five Business Days after a shareholder's
complete redemption of his/her Investor D Shares in a Fund. To the extent that
there are any net short-term capital gains, they will be paid at least annually.
Each Fund's net investment income available for distribution to the holders of
Investor D Shares will be reduced by the amount of sales support and shareholder
servicing fees paid to Selling Agents and Servicing Agents, respectively. Each
Fund's net investment income available for distribution to the holders of
Investor D Shares will be reduced by the amount of retail transfer agency fees
allocated to Investor D Shares.
TAX INFORMATION: Each Fund intends to qualify as a "regulated investment
company" under the Code. Such qualification relieves a Fund of liability for
Federal income tax on amounts distributed in accordance with the Code.
Each Fund intends to distribute substantially all of its investment company
taxable income and net tax-exempt income each taxable year. Distributions by
Nations Prime Fund, Nations Treasury Fund and Nations Government Money Market
Fund will be taxable as ordinary income to shareholders who are not currently
exempt from Federal income tax, whether such income is received in cash or
reinvested in additional shares. (Federal income tax for distributions to an IRA
is generally deferred under the Code.) These distributions will not qualify for
the dividends received deduction for corporate shareholders.
Dividends received from Nations Treasury Fund and Nations Government Money
Market Fund may qualify as tax-exempt dividends for state income tax purposes in
some states. The Funds do not expect to realize any long-term capital gains, and
therefore, do not expect to distribute any capital gains dividends.
Each year, shareholders will be notified as to the amount and Federal tax status
of all dividends (and capital gains, if applicable) paid during the prior year.
Such dividends (and capital gains) may be subject to state and local taxes.
Dividends declared in October, November, or December of any year payable to
shareholders of record on a specified date in such months will be deemed to have
been received by shareholders and paid by the Fund on December 31 of such year
in the event such dividends are actually paid during January of the following
year.
Federal law requires Nations Fund to withhold 31% from any dividends (other than
exempt-interest dividends) paid by Nations Fund and/or redemptions (including
exchange redemptions) that occur in certain shareholder accounts if the
shareholder has not properly furnished a certified correct Taxpayer
Identification Number and has not certified that withholding does not apply, or
if the Internal Revenue Service has notified Nations Fund that the Taxpayer
Identification Number listed on a shareholder account
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is incorrect according to its records, or that the shareholder is subject to
backup withholding. Amounts withheld are applied to the shareholder's Federal
tax liability, and a refund may be obtained from the Internal Revenue Service if
withholding results in overpayment of taxes. Federal law also requires the Funds
to withhold 30% or the applicable tax treaty rate from dividends paid to certain
nonresident alien, non-U.S. partnership and non-U.S. corporation shareholder
accounts.
NATIONS TAX EXEMPT FUND: As a regulated investment company, Nations Tax Exempt
Fund is permitted to pass through to its shareholders tax-exempt income
("exempt-interest dividends") subject to certain requirements which the Fund
intends to satisfy. The Fund does not intend to earn investment company taxable
income or long-term capital gains; to the extent that it does earn taxable
income or realize long-term capital gains, distributions to shareholders from
such sources will be subject to Federal income tax. Exempt-interest dividends
may be treated by shareholders as items of interest excludable from their
federal gross income under Section 103(a) of the Code unless, under the
circumstances applicable to the particular shareholder, the exclusion would be
disallowed. (See Nations Fund Trust's SAI under "Additional Information
Concerning Taxes.") Distributions of net investment income by Nations Tax Exempt
Fund may be taxable to investors under state or local law even though a
substantial portion of such distributions may be derived from interest on
tax-exempt obligations which, if realized directly, would be exempt from such
income taxes.
If Nations Tax Exempt Fund should hold certain private activity bonds issued
after August 7, 1986, shareholders must include, as an item of tax preference,
the portion of dividends paid by the Fund that is attributable to interest on
such bonds in their Federal alternative minimum taxable income for purposes of
determining liability (if any) for the 28% alternative minimum tax applicable to
individuals and the 20% alternative minimum tax and the environmental tax
applicable to corporations. Corporate shareholders must also take all
exempt-interest dividends into account in determining certain adjustments for
Federal alternative minimum and environmental tax purposes. The environmental
tax applicable to corporations is imposed at the rate of 0.12% on the excess of
the corporation's modified Federal alternative minimum taxable income over
$2,000,000. Shareholders receiving Social Security benefits should note that all
exempt-interest dividends will be taken into account in determining the
taxability of such benefits. To the extent, if any, dividends paid to
shareholders are derived from taxable income or from long-term or short-term
capital gains, such dividends will not be exempt from Federal income tax and
also may be subject to state and local tax.
The foregoing discussion is based on tax laws and regulations that were in
effect as of the date of this Prospectus and summarizes only some of the
important Federal tax considerations generally affecting the Funds and their
shareholders. It is not intended as a substitute for careful tax planning;
investors should consult their tax advisors with respect to their specific tax
situations as well as with respect to state and local taxes. Further tax
information is contained in the SAIs.
Appendix A -- Portfolio Securities
The following are summary descriptions of certain types of instruments in which
a Fund may invest. The "How Objectives Are Pursued" section of this Prospectus
identifies each Fund's permissible investments, and the SAIs contain more
information concerning such investments.
ASSET-BACKED SECURITIES: Asset-backed securities arise through the grouping by
governmental, government-related, and private
organiza-
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tions 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 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. Instead,
asset-backed securities provide periodic payments which generally consist of
both interest and principal payments.
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans, the interest in which is in most cases issued and
guaranteed by an agency or instrumentality of the U.S. Government, though not
necessarily by the U.S. Government itself. Mortgage-backed securities include
mortgage pass-through securities, collateralized mortgage obligations ("CMOs"),
parallel pay CMOs, planned amortization class CMOs ("PAC Bonds") and stripped
mortgage-backed securities ("SMBS"), including interest-only and principal-only
SMBS. SMBS may be more volatile than other debt securities. For additional
information concerning mortgage-backed securities, see the related SAI.
Non-mortgage-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.
BANK INSTRUMENTS: Bank instruments consist mainly of certificates of deposit,
time deposits and bankers' acceptances. The Nations Prime Fund generally limits
investments in bank instruments to (a) U.S. dollar-denominated obligations of
U.S. banks which have total assets exceeding $1 billion and which are members of
the Federal Deposit Insurance Corporation (including obligations of foreign
branches of such banks) or of the 75 largest foreign commercial banks in terms
of total assets; or (b) U.S. dollar-denominated bank instruments issued by other
banks believed by the Adviser to present minimal credit risks. For purposes of
the foregoing, total assets may be determined on the basis of the bank's most
recent annual financial statements.
Nations Prime Fund may invest up to 100% of its assets in obligations issued by
banks. All other Funds will limit their investments in bank obligations so they
do not exceed 25% of each Fund's total assets at the time of purchase. Nations
Prime Fund may invest in U.S. dollar-denominated obligations issued by foreign
branches of domestic banks ("Eurodollar" obligations) and domestic branches of
foreign banks ("Yankee dollar" obligations).
Eurodollar, Yankee dollar and other foreign obligations involve special
investment risks, including the possibility that liquidity could be impaired
because of future political and economic developments, the obligations may be
less marketable than comparable domestic obligations of domestic issuers, a
foreign jurisdiction might impose withholding taxes on interest income payable
on such obligations, deposits may be seized or nationalized, foreign
governmental restrictions such as exchange controls may be adopted which might
adversely affect the payment of principal of and interest on such obligations,
the selection of foreign obligations may be more difficult because there may be
less publicly available information concerning foreign issuers, there may be
difficulties in enforcing a judgment against a foreign issuer or the accounting,
auditing and financial reporting standards, practices and requirements
applicable to foreign issuers may differ from those applicable to domestic
issuers. In addition, foreign banks are not subject to examination by U.S.
Government agencies or instrumentalities.
BORROWINGS: When a Fund borrows money, the net asset value of a share may be
subject to greater fluctuation until the borrowing is paid off. The Funds may
borrow money from banks for temporary purposes in amounts of up to one-third of
their respective total assets, provided that borrowings in excess of 5% of the
value of the Funds' total assets must be repaid prior to
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the purchase of portfolio securities. The Funds are parties to a Line of Credit
Agreement with Mellon Bank, N.A. 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.
Reverse repurchase agreements may be considered to be borrowings. When a Fund
invests in a reverse repurchase agreement, it sells a portfolio security to
another party, such as a bank or broker/dealer, in return for cash, and agrees
to buy the security back at a future date and price. Reverse repurchase
agreements may be used to provide cash to satisfy unusually heavy redemption
requests without having to sell portfolio securities, or for other temporary or
emergency purposes. In addition, the Funds may use reverse repurchase agreements
for the purpose of investing the proceeds in tri-party repurchase agreements.
Generally, the effect of such a transaction is that a Fund can recover all or
most of the cash invested in the portfolio securities involved during the term
of the reverse repurchase agreement, while it will be able to keep the interest
income associated with those portfolio securities. Such transactions are only
advantageous if the interest cost to the Funds of the reverse repurchase
transaction is less than the cost of obtaining the cash otherwise.
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 Fund is obligated to repurchase under the agreement may decline below the
repurchase price. In the event the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, a Fund's use of
proceeds of the agreement may be restricted pending a determination by the other
party, or its trustee or receiver, whether to enforce the Fund's obligation to
repurchase the securities. In addition, there is a risk of delay in receiving
collateral or securities or in repurchasing the securities covered by the
reverse repurchase agreement or even of a loss of rights in the collateral or
securities in the event the buyer of the securities under the reverse repurchase
agreement files for bankruptcy or becomes insolvent. A Fund only enters into
reverse repurchase agreements (and repurchase agreements) with counterparties
that are deemed by the Adviser to be credit worthy. Reverse repurchase
agreements are speculative techniques involving leverage, and are subject to
asset coverage requirements if a Fund does not establish and maintain a
segregated account (as described above). Under the requirements of the 1940 Act,
a Fund is required to maintain an asset coverage (including the proceeds of the
borrowings) of at least 300% of all borrowings. Depending on market conditions,
a Fund's asset coverage and other factors at the time of a reverse repurchase,
the Fund 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.
Currently, Nations Treasury Fund has entered into an arrangement whereby it
reinvests the proceeds of a reverse repurchase agreement in a tri-party
repurchase agreement and receives the net interest rate differential.
COMMERCIAL INSTRUMENTS: Commercial instruments consist of short-term U.S.
dollar-denominated obligations issued by domestic corporations or foreign
corporations and domestic and foreign commercial banks. The Nations Prime Fund
will limit purchases of commercial instruments to instruments that: (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.
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Investments by a Fund in commercial paper will consist of issues rated in a
manner consistent with such Fund's investment policies and objective. In
addition, a Fund may acquire unrated commercial paper and corporate bonds that
are determined by the Adviser at the time of purchase to be of comparable
quality to rated instruments that may be acquired by a Fund. Commercial
instruments include variable-rate master demand notes, which are unsecured
instruments that permit the indebtedness thereunder to vary and provide for
periodic adjustments in the interest rate, and variable- and floating-rate
instruments.
FOREIGN SECURITIES: Foreign securities include debt and equity obligations
(dollar- and non-dollar-denominated) of foreign corporations and banks as well
as obligations of foreign governments and their political subdivisions (which
will be limited to direct government obligations and government-guaranteed
securities). Such investments may subject a Fund to special investment risks,
including future political and economic developments, the possible imposition of
withholding taxes on interest income, possible seizure or nationalization of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely affect
the payment of principal and interest on such obligations. In addition, foreign
issuers in general may be subject to different accounting, auditing, reporting,
and record keeping standards than those applicable to domestic companies, and
securities of foreign issuers may be less liquid and their prices more volatile
than those of comparable domestic issuers.
Investments in foreign securities may present additional risks, whether made
directly or indirectly, including the political or economic instability of the
issuer or the country of issue and the difficulty of predicting international
trade patterns. In addition, there may be less publicly available information
about a foreign company than about a U.S. company. Further, foreign securities
markets are generally not as developed or efficient as those in the U.S., and in
most foreign markets volume and liquidity are less than in the United States.
Fixed commissions on foreign securities exchanges are generally higher than the
negotiated commissions on U.S. exchanges, and there is generally less government
supervision and regulation of foreign securities exchanges, brokers, and
companies than in the United States. With respect to certain foreign countries,
there is a possibility of expropriation or confiscatory taxation, limitations on
the removal of funds or other assets, or diplomatic developments that could
affect investments within those countries. Because of these and other factors,
securities of foreign companies acquired by a Fund may be subject to greater
fluctuation in price than securities of domestic companies.
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 that, 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.
ILLIQUID SECURITIES: Certain securities may be sold only pursuant to certain
legal restrictions, and may be difficult to sell. The Money Market Funds will
not hold more than 10% of the value of their respective net assets in securities
that are illiquid or such lower percentage as may be
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required by the states in which the Funds sells their shares. Repurchase
agreements, time deposits and GICs that do not provide for payment to a Fund
within seven days after notice, and illiquid restricted securities are subject
to the limitation on illiquid securities. In addition, interests in privately
arranged loans acquired by the Nations Prime Fund may be subject to this
limitation.
If otherwise consistent with their investment objectives and policies, certain
Funds may purchase securities that are not registered under the Securities Act
of 1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A and Section 4(2) under the
1933 Act. Any such security will not be considered illiquid so long as it is
determined by a Fund's Board of Trustees or Board of Directors or the Adviser,
acting under guidelines approved and monitored by the Fund's Board, after
considering trading activity, availability of reliable price information and
other relevant information, that an adequate trading market exists for that
security. To the extent that, for a period of time, qualified institutional
buyers cease purchasing such restricted securities pursuant to Rule 144A and
Section 4(2), the level of illiquidity of a Fund holding such securities may
increase during such period.
INTEREST RATE TRANSACTIONS: In order to attempt to protect the value of their
portfolios from interest rate fluctuations, certain of the Funds may enter into
various hedging transactions, such as interest rate swaps and the purchase or
sale of interest rate caps and floors. Interest rate swaps involve the exchange
by a 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.
A Fund will enter into a swap transaction on a net basis, I.E. the payment
obligations of the Fund and the counterparty will be netted out with the Fund
receiving or paying, as the case may be, only the net amount of the two payment
obligations. A Fund will segregate, on a daily basis, cash or liquid high
quality debt securities with a value at least equal to the Fund's net
obligations, if any, under a swap agreement.
The purchase of an interest rate cap entitles the purchaser, to the extent that
a specified index exceeds a predetermined interest rate, to receive payments of
interest on a notional principal amount from the party selling such interest
rate cap. The purchase of an interest rate floor entitles the purchaser to
receive payments of interest on a notional principal amount from the party
selling such interest rate floor. The Adviser expects to enter into these
transactions on behalf of a Fund primarily to preserve a return or spread on a
particular investment or portion of its portfolio or to protect against any
increase in the price of securities the Fund anticipated purchasing at a later
date rather than for speculative purposes. A Fund will not sell interest rate
caps or floors that it does not own.
MONEY MARKET INSTRUMENTS: The term "money market instruments" refers to
instruments with remaining maturities of 397 days or less, or instruments
subject to demand features or resets if the remaining maturity is more than 397
days. Money market instruments may include, among other instruments, certain
U.S. Treasury Obligations, U.S. Government Obligations, bank instruments,
commercial instruments, repurchase agreements and municipal securities. Such
instruments are described in this Appendix A.
MUNICIPAL SECURITIES: 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.
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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 instrument. 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. 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.
Municipal Securities also may include municipal lease obligations, including
certificates of participation in municipal leases, and units of participation in
trusts holding pools of tax-exempt leases. A Fund may acquire municipal lease
obligations that may be assigned by the lessee to another party provided the
obligation continues to provide tax-exempt interest. Each Fund will not purchase
municipal lease obligations to the extent it holds municipal lease obligations
and illiquid securities in an amount exceeding 10% of its total assets unless
the Adviser determines that the municipal lease obligations are liquid pursuant
to guidelines established by the Fund's Boards. Pursuant to these guidelines,
the Adviser, in making this liquidity determination, will consider, among other
factors, the strength and nature of the secondary market for such obligations,
the prospect for its future marketability and whether such obligations are
rated. The Fund's expect that they will only purchase rated municipal lease
obligations.
Municipal participation interests may be purchased from financial institutions,
and give the purchaser an undivided interest in one or more underlying Municipal
Securities. 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.
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. A Fund will acquire
stand-by commitments solely to facilitate portfolio liquidity and without
intending to exercise its rights thereunder for trading purposes.
A Fund may invest in short-term securities, in commitments to purchase such
securities on a "when-issued" basis, and reserves the right to engage in "put"
transactions on a daily, weekly or monthly basis. Securities purchased on a
"when-issued" basis are subject to settlement within 45 days of the purchase
date. The interest rate realized on these securities is fixed as of the purchase
date and no interest accrues to the Fund before settlement. These securities are
subject to market fluctuation due to changes in market interest rates. The Funds
will only commit to purchase a security on a when-issued basis with the
intention of actually acquiring the security and will segregate sufficient
liquid assets to meet its purchase obligation.
A "put" feature permits a Fund to sell a security at a fixed price prior to
maturity. The underlying Municipal Securities subject to a put may be sold at
any time at the market rates. However, unless the put was an integral part of
the security as originally issued, it may not be marketable or assignable.
Therefore, the put would only have
28
<PAGE>
value to the Fund. In certain cases a premium may be paid for put features. A
premium paid will have the effect of reducing the yield otherwise payable on the
underlying security. The purpose of engaging in transactions involving puts is
to maintain flexibility and liquidity to permit the Fund to meet redemptions and
remain as fully invested as possible in municipal securities. The Funds will
limit their put transactions to institutions which the Adviser believes present
minimal credit risk, pursuant to guidelines adopted by the Boards. Nations Tax
Exempt Fund may invest more than 40% of its portfolio in puts or other
securities guaranteed by bank and other financial institutions. Accordingly,
changes in the credit quality of these institutions could cause losses to the
Fund and affect its share price.
Although each Fund does not presently intend to do so on a regular basis, each
may invest more than 25% of its total assets in Municipal Securities that are
payable 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.
OTHER INVESTMENT COMPANIES: Each Fund may invest in securities issued by other
investment companies to the extent that such investments are consistent with the
Fund's investment objective and policies and permissible under the 1940 Act. 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 directly in connection with its own operations.
REPURCHASE AGREEMENTS: A repurchase agreement involves the purchase of a
security by a Fund and a simultaneous agreement (generally with a bank or
broker/dealer) to repurchase that security from the Fund at a specified price
and date or upon demand. This technique offers a method of earning income on
uninvested cash. A risk associated with repurchase agreements is the failure of
the seller to repurchase the securities as agreed, which may cause a Fund to
suffer a loss if the market value of such securities declines before they can be
liquidated on the open market. Repurchase agreements with a duration of more
than seven days are considered illiquid securities and are subject to the limit
stated above. A Fund may enter into joint repurchase agreements jointly with
other investment portfolios of Nations Fund.
SECURITIES LENDING: To increase return on portfolio securities, the 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. There is a risk of delay in receiving collateral or in
recovering the securities loaned or even a loss of rights in the collateral
should the borrower of the securities fail financially. However, loans are made
only to borrowers deemed by the Adviser to be credit worthy and when, in its
judgment, the income to be earned from the loan justifies the attendant risks.
The aggregate of all outstanding loans of a Fund may not exceed 30% of the value
of its total assets.
SHORT-TERM TRUST OBLIGATIONS: Nations Prime Fund may invest in short-term
obligations issued by special purpose trusts established to acquire specific
issues of government or corporate securities. Such obligations entitle the Fund
to a proportional fractional interest in payments received by a trust, either
from the underlying securities owned by the trust or pursuant to other
arrangements entered into by the trust. A trust may enter into a swap
arrangement with a highly rated investment firm, pursuant to which the trust
grants to the counterparty certain of its rights with respect to the securities
owned by the trust in exchange for the obligation of the counterparty to make
payments to the trust according to an established formula. The trust obligations
purchased by the Fund must satisfy the quality and maturity requirements
generally applicable to the Fund pursuant to Rule 2a-7 under the 1940 Act.
29
<PAGE>
U.S. GOVERNMENT OBLIGATIONS: U.S. Government Obligations consist of marketable
securities and instruments issued or guaranteed by the U.S. Government or any of
its agencies, authorities or instrumentalities. Direct obligations are issued by
the U.S. Treasury and include all U.S. Treasury instruments. Obligations of U.S.
Government agencies, authorities and instrumentalities are issued by
government-sponsored agencies and enterprises acting under authority of
Congress. Although obligations of federal agencies, authorities and
instrumentalities are not debts of the U.S. Treasury, in some cases payment of
interest and principal on such obligations is guaranteed by the U.S. Government,
E.G., Government National Mortgage Association certificates; in other cases
interest and principal are not guaranteed, E.G., obligations of the Federal Home
Loan Bank System and the Federal Farm Credit Bank. No assurance can be given
that the U.S. Government would provide financial support to government-sponsored
instrumentalities if it is not obligated to do so by law.
The market value of U.S. Government Obligations may fluctuate due to
fluctuations in market interest rates. As a general matter, the value of debt
instruments, including U.S. Government Obligations, declines when market
interest rates increase and rises when market interest rates decrease. Certain
types of U.S. Government Obligations are subject to fluctuations in yield or
value due to their structure or contract terms.
VARIABLE- AND FLOATING-RATE INSTRUMENTS: Certain instruments issued, guaranteed
or sponsored by the U.S. Government or its agencies, state and local government
issuers, and certain debt instruments issued by domestic and foreign banks and
corporations may carry variable or floating rates of interest. Such instruments
bear interest rates which are not fixed, but which vary with changes in
specified market rates or indices, such as a Federal Reserve composite index. A
variable-rate demand instrument is an obligation with a variable or floating
interest rate and an unconditional right of demand on the part of the holder to
receive payment of unpaid principal and accrued interest. The Funds will invest
in securities with demand features where (a) the security or its issuer has
received a short-term rating from an NRSRO; and (b) the issuer of the demand
feature, or another institution, undertakes to notify promptly the holder of the
security in the event that the demand feature is substituted with a demand
feature provided by another issuer. (Note, however, that certain securities
first issued on or before June 3, 1996 are not subject to these rating and
notice requirements.) An instrument with a demand period exceeding seven days
may be considered illiquid if there is no secondary market for such security.
WHEN-ISSUED, DELAYED DELIVERY AND FORWARD COMMITMENT SECURITIES: The purchase of
new issues of securities on a "when-issued," "delayed delivery" or "forward
commitment" basis occurs when the payment for and delivery of securities takes
place at a future date. Because actual payment for and delivery of such
securities generally take place 15 to 45 days after the purchase date,
purchasers of such securities bear the risk that interest rates on debt
securities at the time of delivery may be higher or lower than those contracted
for on the security purchased.
Appendix B -- Description Of Ratings
The following summarizes the highest three ratings used by S&P for corporate and
municipal bonds:
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 strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse
30
<PAGE>
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
The following summarizes the highest three ratings used by Moody's for corporate
and municipal bonds:
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.
Moody's applies numerical modifiers (1, 2 and 3) with respect to corporate bonds
rated Aa and A. 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 and A groups which Moody's believes possess the strongest investment
attributes are designated by the symbols Aa1 and A1, respectively.
The following summarizes the highest three ratings used by D&P for bonds:
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.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major category.
The following summarizes the highest three ratings used by Fitch for bonds:
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
princi-
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pal is considered to be strong, but may be more vulnerable to adverse
changes in economic conditions and circumstances than bonds with higher
ratings.
To provide more detailed indications of credit quality, the AA and A ratings may
be modified by the addition of a plus or minus sign to show relative standing
within this major rating category.
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 two highest rating categories of D&P for short-term debt are D-1 and D-2.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
The following summarizes the two highest rating categories used by Fitch for
short-term obligations:
F-1+ securities possess exceptionally strong credit quality. Issues
assigned this rating are regarded as having the strongest degree of
assurance for timely payment.
F-1 securities possess very strong credit quality. Issues assigned this
rating reflect an assurance of timely payment only slightly less in degree
than issues rated F-1+.
Commercial paper rated A-1 by S&P indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted A-1+. Capacity for timely payment on
commercial paper rated A-2 is satisfactory, but the relative degree of safety is
not as high as for issues designated A-1.
The rating Prime-1 is the highest commercial paper rating assigned by Moody's.
Issuers rated Prime-1 (or related supporting institutions) are considered to
have a superior capacity for repayment of senior short-term promissory
obligations. Issuers rated Prime-2 (or related supporting institutions) are
considered to have a strong capacity for repayment of senior short-term
promissory obligations. This will normally be evidenced by many of the
characteristics of issuers rated Prime-1, but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
For commercial paper, D&P uses the short-term ratings described above.
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<PAGE>
For commercial paper, Fitch uses the short-term ratings described above.
BankWatch ratings are based upon a qualitative and quantitative analysis of all
segments of the organization including, where applicable, holding company and
operating subsidiaries. BankWatch ratings do not constitute a recommendation to
buy or sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
BankWatch long-term ratings apply to specific issues of long-term debt and
preferred stock. The long-term ratings specifically assess the likelihood of
untimely payment of principal or interest over the term to maturity of the rated
instrument. The following are the three highest 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.
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".
The following summarizes the three highest long-term ratings used by IBCA:
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
A plus or minus sign may be appended to a rating below AAA to denote relative
status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ -- Where issues possess a particularly strong credit feature.
A1 -- Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
33
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NATIONS FUND TRUST
STATEMENT OF ADDITIONAL INFORMATION
Nations Government Money Market Fund
Nations Tax Exempt Fund
Nations Value Fund
Nations Capital Growth Fund
Nations Emerging Growth Fund
Nations Equity Index Fund
Nations Managed Index Fund
Nations Disciplined Equity Fund
Nations Balanced Assets Fund
Nations Short-Intermediate Government Fund
Nations Short-Term Income Fund
Nations Diversified Income Fund
Nations Strategic Fixed Income Fund
Nations Municipal Income Fund
Nations Short-Term Municipal Income Fund
Nations Intermediate Municipal Bond Fund
Nations Florida Intermediate Municipal Bond Fund
Nations Florida Municipal Bond Fund
Nations Georgia Intermediate Municipal Bond Fund
Nations Georgia Municipal Bond Fund
Nations Maryland Intermediate Municipal Bond Fund
Nations Maryland Municipal Bond Fund
Nations North Carolina Intermediate Municipal Bond Fund
Nations North Carolina Municipal Bond Fund
Nations South Carolina Intermediate Municipal Bond Fund
Nations South Carolina Municipal Bond Fund
Nations Tennessee Intermediate Municipal Bond Fund
Nations Tennessee Municipal Bond Fund
Nations Texas Intermediate Municipal Bond Fund
Nations Texas Municipal Bond Fund
Nations Virginia Intermediate Municipal Bond Fund
Nations Virginia Municipal Bond Fund
INVESTOR SHARES AND PRIMARY SHAREs
July 31, 1996
This Statement of Additional Information ("SAI") provides supplementary
information pertaining to the classes of shares representing interests in the
above listed thirty-one investment portfolios of Nations Fund Trust
(individually, a "Fund" and collectively, the "Funds"). This SAI is not a
prospectus, and should be read only in conjunction with the current prospectuses
for the aforementioned Funds related to the class or series of shares in which
one is interested, dated July 31, 1996 (each a "Prospectus"). All terms used in
this SAI that are defined in the Prospectuses will have the same meanings
assigned in the Prospectuses. Copies of these Prospectuses may be obtained by
writing Nations Fund, c/o Stephens Inc., One NationsBank Plaza, 33rd Floor,
Charlotte, North Carolina 28255, or by calling Nations Funds at 1-800-321-7854.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION..................................................................................... 1
FUND TRANSACTIONS AND BROKERAGE ................................................................. 2
ADDITIONAL INFORMATION ON FUND INVESTMENTS....................................................... 6
Asset Backed Securities................................................................. 6
Commercial Instruments.................................................................. 10
Repurchase Agreements................................................................... 11
Reverse Repurchase Agreements........................................................... 11
Lending Securities...................................................................... 11
American Depositary Receipts............................................................ 12
Futures, Options and Other Derivative
Instruments....................................................................... 12
When-Issued Purchases and Forward
Commitments....................................................................... 17
Municipal Securities.................................................................... 17
Insured Municipal Securities............................................................ 45
Real Estate Investment Trusts........................................................... 45
Guaranteed Investment Contracts......................................................... 46
Variable- and Floating- Rate
Instruments....................................................................... 46
Stand-by Commitments.................................................................... 47
Variable- and Floating-Rate Government
Securities........................................................................ 48
Lower Rated Debt Securities............................................................. 48
Dollar Roll Transactions................................................................ 50
Foreign Currency Transactions........................................................... 50
Interest Rate Transactions.............................................................. 51
Illiquid Securities..................................................................... 52
Other Securities........................................................................ 52
Additional Investment Limitations....................................................... 53
NET ASSET VALUE ................................................................................. 55
Money Market Funds...................................................................... 55
Non-Money Market Funds.................................................................. 56
Exchange Privilege...................................................................... 57
DESCRIPTION OF SHARES ........................................................................... 58
Dividends and Distributions............................................................. 59
ADDITIONAL INFORMATION CONCERNING TAXES ......................................................... 60
Federal Taxes - In General.............................................................. 60
i
<PAGE>
Federal Excise Tax on Regulated Investment
Companies......................................................................... 63
Distributions........................................................................... 64
Sale or Redemptions of Shares........................................................... 66
Foreign Shareholders.................................................................... 67
Special Tax Considerations Pertaining to the Value,
Capital Growth, Emerging Growth, Equity Index,
Managed Index, Balanced Assets, Short Intermediate
Government, Managed Bond, Short-Term Income,
Diversified Income, Strategic Fixed, Adjustable Rate
Government and Mortgage-Backed Securities Funds................................... 67
Special Tax Considerations Pertaining to the Municipal
Income, Short-Term Municipal Income, Intermediate
Municipal Bond, State Intermediate Municipal Bond
and the State Municipal Bond Funds................................................ 69
TRUSTEES AND OFFICERS ........................................................................... 73
Compensation Table...................................................................... 76
Nations Funds Retirement Plan........................................................... 77
Nations Funds Deferred Compensation Plan................................................ 78
Shareholder and Trustee Liability....................................................... 78
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING, SHAREHOLDER ADMINISTRATION AND DISTRIBUTION AGREEMENTS .. 79
Investment Adviser...................................................................... 79
Investment Styles....................................................................... 86
Administrator and Co-Administrator...................................................... 90
Custodian and Transfer Agent............................................................ 94
Shareholder Servicing Agreements
(Primary B Shares Only)........................................................... 94
Shareholder Administration Plan
(Primary B Shares Only)........................................................... 95
Distribution Plans and Shareholder
Servicing Arrangements for Investor Shares......................................... 96
DISTRIBUTOR ..................................................................................... 109
INDEPENDENT ACCOUNTANT AND REPORTS............................................................... 111
COUNSEL.......................................................................................... 111
ADDITIONAL INFORMATION ON PERFORMANCE ........................................................... 111
Yield Calculations...................................................................... 111
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Total Return Calculations............................................................... 124
MISCELLANEOUS ................................................................................... 134
Certain Record Holders.................................................................. 134
SCHEDULE A....................................................................................... A-1
SCHEDULE B....................................................................................... B-1
SCHEDULE C....................................................................................... C-1
</TABLE>
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INTRODUCTION
Nations Fund Trust ("Trust") was organized on May 6, 1985 under the
name "MarketMaster Trust," and in March 1992 changed its name to "Nations Fund,"
and in September 1992 changed its name to "Nations Fund Trust." The Trust's
fiscal year end is March 31; prior to 1996, the Trust's fiscal year end was
November 30. NationsBanc Advisors, Inc. ("NBAI") is the investment adviser to
the Funds. TradeStreet Investment Associates, Inc. ("TradeStreet") is a
sub-investment adviser. As used herein the "Adviser" shall mean NBAI and/or
TradeStreet as the context may require.
Nations Fund Trust currently consists of thirty-two different
investment portfolios. This SAI pertains to the Primary A (formerly called Trust
A), Primary B (formerly called Trust B), Investor A, Investor B, Investor C and
Investor D Shares of the following investment portfolios of Nations Fund Trust:
Nations Government Money Market Fund ("Government Money Market Fund") and
Nations Tax Exempt Fund ("Tax Exempt Fund") (collectively, the "Money Market
Funds") and the Primary A, Primary B, Investor A, Investor C and Investor N
Shares of Nations Value Fund ("Value Fund"), Nations Capital Growth Fund
("Capital Growth Fund"), Nations Emerging Growth Fund ("Emerging Growth Fund"),
Nations Equity Index Fund ("Equity Index Fund"), Nations Managed Index Fund
("Managed Index Fund"), Nations Disciplined Equity Fund ("Disciplined Equity
Fund"), Nations Balanced Assets Fund ("Balanced Assets Fund"), Nations
Short-Intermediate Government Fund ("Short-Intermediate Government Fund"),
Nations Municipal Income Fund ("Municipal Income Fund"), Nations Short-Term
Municipal Income Fund ("Short-Term Municipal Income Fund"), Nations Intermediate
Municipal Bond Fund ("Intermediate Municipal Bond Fund"), Nations Short-Term
Income Fund ("Short-Term Income Fund"), Nations Diversified Income Fund
("Diversified Income Fund"), Nations Strategic Fixed Income Fund ("Strategic
Fixed Income Fund"), Nations Florida Intermediate Municipal Bond Fund ("Florida
Intermediate Municipal Bond Fund"), Nations Georgia Intermediate Municipal Bond
Fund ("Georgia Intermediate Municipal Bond Fund"), Nations Maryland Intermediate
Municipal Bond Fund ("Maryland Intermediate Municipal Bond Fund"), Nations North
Carolina Intermediate Municipal Bond Fund ("North Carolina Intermediate
Municipal Bond Fund"), Nations South Carolina Intermediate Municipal Bond Fund
("South Carolina Intermediate Municipal Bond Fund"), Nations Tennessee
Intermediate Municipal Bond Fund ("Tennessee Intermediate Municipal Bond Fund"),
Nations Texas Intermediate Municipal Bond Fund ("Texas Intermediate Municipal
Bond Fund"), Nations Virginia Intermediate Municipal Bond Fund ("Virginia
Intermediate Municipal Bond Fund"), Nations Florida Municipal Bond Fund
("Florida Municipal Bond Fund"), Nations Georgia Municipal Bond Fund ("Georgia
Municipal Bond Fund"), Nations Maryland Municipal Bond Fund ("Maryland Municipal
Bond Fund"), Nations North Carolina Municipal Bond Fund ("North Carolina
Municipal Bond Fund"), Nations South Carolina Municipal Bond Fund ("South
Carolina Municipal Bond Fund"), Nations Tennessee Municipal Bond Fund
("Tennessee Municipal Bond Fund"), Nations Texas Municipal Bond Fund ("Texas
Municipal Bond Fund"), and Nations Virginia Municipal Bond Fund ("Virginia
Municipal Bond Fund") (collectively, "Non-Money Market Funds," and with the
Money Market Funds, the "Funds"). The Florida Intermediate Municipal Bond Fund,
Georgia Intermediate Municipal Bond Fund, Maryland Intermediate Municipal Bond
Fund, North Carolina Intermediate Municipal Bond Fund, South Carolina
Intermediate Municipal Bond Fund, Tennessee Intermediate Municipal Bond Fund,
Texas Intermediate Municipal Bond Fund and Virginia Intermediate Municipal Bond
1
<PAGE>
Fund are sometimes collectively referred to herein as the ("State Intermediate
Municipal Bond Funds"). The Florida Municipal Bond Fund, Georgia Municipal Bond
Fund, Maryland Municipal Bond Fund, North Carolina Municipal Bond Fund, South
Carolina Municipal Bond Fund, Tennessee Municipal Bond Fund, Texas Municipal
Bond Fund and Virginia Municipal Bond Fund are sometimes collectively referred
to herein as the ("State Municipal Bond Funds"). The Disciplined Equity Fund was
formerly called "Nations Special Equity Fund." The Primary A Shares and Primary
B Shares of the Funds are sometimes collectively referred to as "Primary
Shares." The Investor A, Investor B, Investor C, Investor D and Investor N
Shares of the Funds are sometimes collectively referred to as "Investor Shares."
As of the date of this SAI, no shares of the Nations Managed Index Fund
have been sold. As a result, certain financial information and performance data
is not available and thus not included in this SAI.
Much of the information contained in this SAI expands upon subjects
discussed in the Prospectuses. No investment in Primary Shares or Investor
Shares should be made without first reading the related Prospectuses.
FUND TRANSACTIONS AND BROKERAGE
Subject to the general supervision of the Board of Trustees, the
Adviser is responsible for, makes decisions with respect to, and places orders
for all purchases and sales of portfolio securities for the Funds.
Transactions on U.S. stock exchanges involve the payment of negotiated
brokerage commissions. On exchanges on which commissions are negotiated, the
cost of transactions may vary among different brokers. Transactions on foreign
stock exchanges involve payment of brokerage commissions which are generally
fixed.
Transactions in both foreign and domestic over-the-counter markets are
generally principal transactions with dealers, and the costs of such
transactions involve dealer spreads rather than brokerage commissions. With
respect to over-the-counter transactions, the Trust, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances in which better prices and execution are available
elsewhere.
Securities purchased and sold by the Non-Money Market Funds are
generally traded in the over-the-counter market on a net basis (i.e., without
commission) through dealers, or otherwise involve transactions directly with the
issuer of an instrument. The cost of securities purchased from underwriters
includes an underwriting commission or concession, and the prices at which
securities are purchased from and sold to dealers include a dealer's mark-up or
mark-down.
The Funds may participate, if and when practicable, in bidding for the
purchase of portfolio securities directly from an issuer in order to take
advantage of the lower purchase price available to members of a bidding group. A
Fund will engage in this practice, however, only when the Adviser, in its sole
discretion, believes such practice to be otherwise in the Fund's interests.
2
<PAGE>
In executing portfolio transactions and selecting brokers or dealers,
the Adviser will seek to obtain the best overall terms available for each Fund.
In assessing the best overall terms available for any transaction, the Adviser
shall consider factors deemed relevant, including the breadth of the market in
the security, the price of the security, the financial condition and execution
capability of the broker or dealer, and the reasonableness of the commission, if
any, both for the specific transaction and on a continuing basis. The Adviser
may cause a Fund to pay a broker/dealer which furnishes brokerage and research
services a higher commission than that which might be charged by another
broker/dealer for effecting the same transaction, provided that the Adviser
determines in good faith that such commission is reasonable in relation to the
value of the brokerage and research services provided by such broker/dealer,
viewed in terms of either the particular transaction or the overall
responsibilities of the Adviser. Such brokerage and research services might
consist of reports and statistics relating to specific companies or industries,
general summaries of groups of stocks or bonds and their comparative earnings
and yields, or broad overviews of the stock, bond, and government securities
markets and the economy.
Supplementary research information so received is in addition to, and
not in lieu of, services required to be performed by the Adviser and does not
reduce the advisory fees payable by the Funds. The Board of Trustees will
periodically review the commissions paid by the Funds to consider whether the
commissions paid over representative periods of time appear to be reasonable in
relation to the benefits inuring to the Funds. It is possible that certain of
the supplementary research or other services received will primarily benefit one
or more other investment companies or other accounts for which investment
discretion is exercised. Conversely, a Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
Under Section 28(e) of the Securities Exchange Act of 1934, an adviser
shall not be "deemed to have acted unlawfully or to have breached its fiduciary
duty" solely because under certain circumstances it has caused the account to
pay a higher commission than the lowest available. To obtain the benefit of
Section 28(e), an adviser must make a good faith determination that the
commissions paid are "reasonable in relation to the value of the brokerage and
research services provided . . . viewed in terms of either that particular
transaction or its overall responsibilities with respect to the accounts as to
which it exercises investment discretion and that the services provided by a
broker provide an adviser with lawful and appropriate assistance in the
performance of its investment decision-making responsibilities." Accordingly,
the price to a Fund in any transaction may be less favorable than that available
from another broker/dealer if the difference is reasonably justified by other
aspects of the portfolio execution services offered.
Broker/dealers utilized by the Adviser may furnish statistical,
research and other information or services which are deemed by the Adviser to be
beneficial to the Funds' investment programs. Research services received from
brokers supplement the Adviser's own research and may include the following
types of information: statistical and background information on industry groups
and individual companies; forecasts and interpretations with respect to U.S. and
foreign economies, securities, markets, specific industry groups and individual
companies; information on political developments; portfolio management
strategies; performance information on securities and information concerning
prices of securities; and information supplied by
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specialized services to the Adviser and to the Trust's Trustees with respect to
the performance, investment activities and fees and expenses of other mutual
funds. Such information may be communicated electronically, orally or in written
form. Research services may also include the providing of equipment used to
communicate research information, the arranging of meetings with management of
companies and the providing of access to consultants who supply research
information.
The outside research assistance is useful to the Adviser since the
brokers utilized by the Adviser as a group tend to follow a broader universe of
securities and other matters than the staff of the Adviser can follow. In
addition, this research provides the Adviser with a diverse perspective on
financial markets. Research services which are provided to the Adviser by
brokers are available for the benefit of all accounts managed or advised by the
Adviser. In some cases, the research services are available only from the broker
providing such services. In other cases, the research services may be obtainable
from alternative sources in return for cash payments. It is the opinion of the
Adviser that because the broker research supplements rather than replaces their
research, the receipt of such research does not tend to decrease their expenses,
but tends to improve the quality of their investment advice. However, to the
extent that the Adviser would have purchased any such research services had such
services not been provided by brokers, the expenses of such services to the
Adviser could be considered to have been reduced accordingly. Certain research
services furnished by broker/dealers may be useful to the Adviser with clients
other than the Funds. Similarly, any research services received by the Adviser
through the placement of portfolio transactions of other clients may be of value
to the Adviser in fulfilling its obligations to the Funds. It is the opinion of
the Adviser that this material is beneficial in supplementing their research and
analysis; and, therefore, it may benefit the Trust by improving the quality of
the Adviser's investment advice. The advisory fees paid by the Trust are not
reduced because the Adviser receives such services.
Some broker/dealers may indicate that the provision of research
services is dependent upon the generation of certain specified levels of
commissions and underwriting concessions by the Adviser's clients, including the
Funds.
The Trust will not execute portfolio transactions through, or purchase
or sell portfolio securities from or to the distributor, the Adviser, the
administrator, or the co-administrator, or their affiliates acting as principal
(including repurchase and reverse repurchase agreements), except to the extent
permitted by the Securities and Exchange Commission (the "SEC"). In addition,
the Trust will not give preference to correspondents of NationsBank N.A.
("NationsBank") or its affiliates with respect to such transactions or
securities. (However, the Adviser is authorized to allocate purchase and sale
orders for portfolio securities to certain financial institutions, including, in
the case of agency transactions, financial institutions which are affiliated
with NationsBank or its affiliates, and to take into account the sale of Fund
shares if the Adviser believes that the quality of the transaction and the
commission are comparable to what they would be with other qualified brokerage
firms.) In addition, a Fund will not purchase securities during the existence of
any underwriting or selling group relating thereto of which the distributor, the
Adviser, administrator, or the co-administrator, or any of their affiliates, is
a member, except to the extent permitted by the SEC. Under certain
circumstances, the Funds may
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be at a disadvantage because of these limitations in comparison with other
investment companies which have similar investment objectives but are not
subject to such limitations.
Certain affiliates of NationsBank Corporation and its subsidiary banks
may have deposit, loan or commercial banking relationships with the corporate
users of facilities financed by industrial development revenue bonds or private
activity bonds purchased by the Tax Exempt Fund, the Municipal Income Fund, the
Short-Term Municipal Income Fund, the Intermediate Municipal Bond Fund, the
State Intermediate Municipal Bond Funds and the State Municipal Bond Funds (the
"Tax-Free Bond Funds"). NationsBank or certain of its affiliates may serve as
trustee, tender agent, guarantor, placement agent, underwriter, or in some other
capacity, with respect to certain issues of municipal securities. Under certain
circumstances, the Tax-Free Bond Funds may purchase municipal securities from a
member of an underwriting syndicate in which an affiliate of NationsBank is a
member. The Trust has adopted procedures pursuant to Rule 10f-3 under The
Investment Company Act of 1940 (the "1940 Act"), and intends to comply with the
requirements of Rule 10f-3, in connection with any purchases of municipal
securities that may be subject to such Rule.
Under the 1940 Act, persons affiliated with the Trust are prohibited
from dealing with the Trust as a principal in the purchase and sale of
securities unless an exemptive order allowing such transactions is obtained from
the SEC. Each of the Funds may purchase securities from underwriting syndicates
of which NationsBank or any of its affiliates is a member under certain
conditions, in accordance with the provisions of a rule adopted under the 1940
Act and any restrictions imposed by the Board of Governors of the Federal
Reserve System.
NationsBank has agreed to maintain its policy and practice of
conducting its trust department independently of its commercial department. In
making investment recommendations for the Funds, trust department personnel will
not inquire or take into consideration whether the issuer of securities proposed
for purchase or sale for those Funds' accounts are customers of the commercial
department. In dealing with commercial customers, the commercial department will
not inquire or take into consideration whether securities of those customers are
held by the Trust.
Investment decisions for each Fund are made independently from those
for the Trust's other investment portfolios, other investment companies, and
accounts advised or managed by the Adviser. Such other investment portfolios,
investment companies, and accounts may also invest in the same securities as the
Funds. When a purchase or sale of the same security is made at substantially the
same time on behalf of one or more of the Funds and another investment
portfolio, investment company, or account, the transaction will be averaged as
to price and available investments allocated as to amount, in a manner which the
Adviser believes to be equitable to each Fund and such other investment
portfolio, investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained or sold by the Fund. To the extent permitted by law,
the Adviser may aggregate the securities to be sold or purchased for the Funds
with those to be sold or purchased for other investment portfolios, investment
companies, or accounts in executing transactions.
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During the fiscal period ended March 31, 1996, the Company did not pay
brokerage commissions to NationsBanc Securities, Inc., NationsBanc Capital
Markets, Inc., Nations Securities or Stephens.
As of the fiscal period ended May 31,1996, the following Funds held the
indicated amounts of securities issued by the Trust's indicated regular broker
or dealer: Balanced Assets Fund -- $1,591,550 of Dean Witter, Discover &
Company; Value Fund -- $5,544,000 of Paine Webber Group, Inc.; Equity Index --
$363, 881, $403,866, and $308,534 of Dean Witter, Discover & Company, Merrill
Lynch and Co., Inc. and Morgan Stanley Group, Inc., respectively. As of the
fiscal period ended May 31, 1996, all other Funds did not hold any securities of
the Company's regular brokers or dealers.
The portfolio turnover rates described in the Prospectuses are
calculated by dividing the lesser of purchases or sales of portfolio securities
for the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose maturities at the time of acquisition
were one year or less. Fund turnover may vary greatly from year to year as well
as within a particular year, and may also be affected by the cash requirements
for redemptions of shares and by requirements which enable a Fund to receive
certain favorable tax treatment. Fund turnover will not be a limiting factor in
making portfolio decisions.
ADDITIONAL INFORMATION ON FUND INVESTMENTS
ASSET-BACKED SECURITIES
In General. Asset-backed securities arise through the grouping by
governmental, government-related, and private organizations of loans,
receivables, or other assets originated by various lenders. Asset-backed
securities consist of both mortgage-and non-mortgage backed securities.
Interests in pools of these assets may differ from other forms of debt
securities, which normally provide for periodic payment of interest in fixed
amounts with principal paid at maturity or specified call dates. Conversely,
asset-backed securities provide periodic payments which may consist of both
interest and principal payments.
The life of an asset-backed security varies depending upon rate of the
prepayment of the underlying debt instruments. The rate of such prepayments will
be a function of current market interest rates and other economic and
demographic factors. For example, falling interest rates generally result in an
increase in the rate of prepayments of mortgage loans while rising interest
rates generally decrease the rate of prepayments. An acceleration in prepayments
in response to sharply falling interest rates will shorten the security's
average maturity and limit the potential appreciation in the security's value
relative to a conventional debt security. Consequently, asset-backed securities
may not be as effective in locking in high, long-term yields. Conversely, in
periods of sharply rising rates, prepayments are generally slow, increasing the
security's average life and its potential for price depreciation.
Mortgage-Backed Securities. Mortgage-backed securities represent an
ownership interest in a pool of mortgage loans.
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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 ("GNMA"), by Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"). Such Certificates are
mortgage-backed securities which represent a partial ownership interest in a
pool of mortgage loans issued by lenders such as mortgage bankers, commercial
banks and savings and loan associations. Such mortgage loans may have fixed or
adjustable rates of interest.
The average life of a mortgage-backed security is likely to be
substantially less than the original maturity of the mortgage pools underlying
the securities. Prepayments of principal by mortgagors and mortgage foreclosures
will usually result in the return of the greater part of principal invested far
in advance of the maturity of the mortgages in the pool.
The yield which will be earned on mortgage-backed securities may vary
from their coupon rates for the following reasons: (i) Certificates may be
issued at a premium or discount, rather than at par; (ii) Certificates may trade
in the secondary market at a premium or discount after issuance; (iii) interest
is earned and compounded monthly which has the effect of raising the effective
yield earned on the Certificates; and (iv) the actual yield of each Certificate
is affected by the prepayment of mortgages included in the mortgage pool
underlying the Certificates and the rate at which principal so prepaid is
reinvested. In addition, prepayment of mortgages included in the mortgage pool
underlying a GNMA Certificate purchased at a premium may result in a loss to the
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.
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Moreover, principal prepayments on the Mortgage Assets may cause the
CMOs to be retired substantially earlier than their stated maturities or final
distribution dates, resulting in a loss of all or part of the premium if any has
been paid. Interest is paid or accrues on all classes of the CMOs on a monthly,
quarterly or semiannual basis.
The principal and interest payments on the Mortgage Assets may be
allocated among the various classes of CMOs in several ways. Typically, payments
of principal, including any prepayments, on the underlying mortgages are applied
to the classes in the order of their respective stated maturities or final
distribution dates, so that no payment of principal is made on CMOs of a class
until all CMOs of other classes having earlier stated maturities or final
distribution dates have been paid in full.
Stripped mortgage-backed securities ("SMBS") are derivative multi-class
mortgage securities. A 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.
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.
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Non-mortgage-backed securities are not issued or guaranteed by the U.S.
Government or its agencies or instrumentalities; however, the payment of
principal and interest on such obligations may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution (such as a bank or insurance company) unaffiliated with
the issuers of such securities.
The purchase of non-mortgage-backed securities raises considerations
peculiar to the financing of the instruments underlying such securities. For
example, most organizations that issue asset-backed securities relating to motor
vehicle installment purchase obligations perfect their interests in their
respective obligations only by filing a financing statement and by having the
servicer of the obligations, which is usually the originator, take custody
thereof. In such circumstances, if the servicer were to sell the same
obligations to another party, in violation of its duty not to do so, there is a
risk that such party could acquire an interest in the obligations superior to
that of the holders of the asset-backed securities. Also, although most such
obligations grant a security interest in the motor vehicle being financed, in
most states the security interest in a motor vehicle must be noted on the
certificate of title to perfect such security interest against competing claims
of other parties. Due to the larger number of vehicles involved, however, the
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.
The development of non-mortgage backed securities is at an early stage
compared to mortgage-backed securities. While the market for asset-backed
securities is becoming increasingly liquid, the market for mortgage-backed
securities issued by certain private organizations and non-mortgage-backed
securities is not as well developed. As stated above, the Adviser, as adviser to
each Fund, intends to limit its purchases of mortgage-backed securities issued
by certain private organizations and non-mortgage-backed securities to
securities that are readily marketable at the time of purchase.
COMMERCIAL INSTRUMENTS
Commercial Instruments consist of short-term U.S. dollar-denominated
obligations issued by domestic corporations or by foreign corporations and
foreign commercial banks.
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
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time of purchase to be of comparable quality to rated instruments that may be
acquired by these 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
that criteria similar to the following are met; (a) if rated by at least two
Nationally Recognized Statistical Rating Organizations ("NRSROs"), the
instruments are rated in the highest rating category for short-term 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
the Board of Trustees on the advice of the Adviser. 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.
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.
REPURCHASE AGREEMENTS
The repurchase price under the 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 the Trust's custodian, or a
sub-custodian, in a segregated account or in the Federal Reserve/Treasury
book-entry system. Repurchase agreements are considered to be loans by the Trust
under the 1940 Act.
REVERSE REPURCHASE AGREEMENTS
At the time a 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
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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.
LENDING SECURITIES
To increase return on portfolio securities, certain of the 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 30%
of the value of its total assets. There may be risks of delay in receiving
additional collateral or in recovering the securities loaned or even a loss of
rights in the collateral should the borrower of the securities fail financially.
However, loans are made only to borrowers deemed by the Adviser to be of good
standing and when, in its judgment, the income to be earned from the loan
justifies the attendant risks. Pursuant to the securities loan agreement a 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.
Nations Short-Term Municipal Income Fund, Nations Short-Intermediate
Municipal Income Fund, Nations Intermediate Municipal Bond Fund, Nations
Tax-Exempt Fund, the State Municipal Bond Funds and the State Intermediate
Municipal Bond Funds may not engage in securities lending.
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AMERICAN DEPOSITARY RECEIPTS
The Non-Money Market Funds (consistent with their investment policies
and objectives) may invest in American Depositary Receipts ("ADRs"), which are
receipts issued by an American bank or trust company evidencing ownership of
underlying securities issued by a foreign issuer. ADRs may be listed on a
national securities exchange or may trade in the over-the-counter market. The
prices of ADRs are denominated in U.S. dollars; the underlying security may be
denominated in a foreign currency. The underlying security may be subject to
foreign government taxes which would reduce the yield on such securities.
Investments in such securities also involve certain inherent risks, including
those set forth in the Prospectuses for the Funds under "Appendix A -- Foreign
Securities."
FUTURES, OPTIONS AND OTHER DERIVATIVE INSTRUMENTS
Certain of the Funds may purchase put and call options which are traded
on a national securities exchange in an amount not exceeding 5% of its net
assets. Such options may relate to particular securities or to various stock or
bond indices. Purchasing options is a specialized investment technique which
entails a substantial risk of a complete loss of the amount paid as premiums to
the writer of the option.
Futures Contracts and Related Options. In addition, the Adviser may
determine that it would be in the interest of a Fund to purchase or sell futures
contracts, or options thereon, as a hedge against changes resulting from market
conditions in the value of the securities held by one of the Funds, or of
securities which one of them intends to purchase. For example, a Fund may enter
into transactions involving a stock or bond index futures contract, which is a
bilateral agreement pursuant to which two parties agree to take or make delivery
of an amount of cash equal to a specified dollar amount times the difference
between the index value (which assigns relative values to the common stocks or
bonds included in the index) at the close of the last trading day of the
contract and the price at which the futures contract is originally struck. No
physical delivery of the underlying stocks or bonds in the index is made. During
the coming fiscal year, each of these Funds intends to limit its transactions in
futures contracts and options thereon so that: (i) no more than 5% of a Fund's
total assets would be committed to initial margin deposits or premiums on such
contracts and (ii) immediately after entering into such contracts, no more than
30% of a Fund's total assets would be represented by such contracts.
Options Trading. Call options written by a Fund give the holder the
right to buy the underlying securities from the Fund at a fixed exercise price
up to a stated expiration date or, in the case of certain options, on such date.
Put options give the holder the right to sell the underlying securities to the
Fund during the term of the option at a fixed exercise price up to a stated
expiration date or, in the case of certain options, on such date. Call options
are "covered" by a Fund, for example, when it owns the underlying securities and
put options are "covered" by the Fund, for example, when it has established a
segregated account of cash, cash equivalents or securities which can be
liquidated promptly to satisfy any obligation of a Fund to purchase the
underlying securities. A Fund also may write combinations of puts and calls on
the same underlying security.
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A Fund will receive a premium from writing a put or call option, which
increases the gross income of a Fund 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 exercise price to the market price and
volatility of the underlying security, the remaining term of the option, supply
and demand and interest rates. 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, a 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 unless the security subsequently appreciates in value.
A Fund may terminate an option that it has written prior to its
expiration by entering into a closing purchase transaction in which the Fund
purchases an option having the same terms as the option written. It is possible,
however, that illiquidity in the options markets may make it difficult from time
to time for a Fund to close out its written option positions.
A Fund also may purchase put or call options in anticipation of changes
in interest rates which may adversely affect the value of its portfolio or the
prices of securities that the Fund wants to purchase at a later date. The
premium paid for a put or call option plus any transaction costs will reduce the
benefit, if any, realized by a Fund upon exercise of the option and, unless the
price of the underlying security changes sufficiently, the option may expire
without value.
A Fund may write and purchase options on securities both for hedging
purposes and in an effort to increase current income. Options on securities that
are written or purchased by a Fund will be traded on U.S. and foreign exchanges
and over-the-counter.
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 applicable limitations on the amount of a Fund's assets that may
be invested in illiquid securities. 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 the applicable SEC test regarding illiquid
securities.
As stated in the related Prospectuses, each Fund may purchase put and
call options listed on a national securities exchange. This is a highly
specialized activity which entails greater than ordinary investment risks.
Regardless of how much the market price of the underlying security
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increases or decreases, the option buyer's risk is limited to the amount of the
original investment for the purchase of the option. However, options may be more
volatile than the underlying securities, and therefore, on a percentage basis,
an investment in options may be subject to greater fluctuation than an
investment in the underlying securities. A listed call option gives the
purchaser of the option the right to buy from a clearing corporation, and a
writer has the obligation to sell to the clearing corporation, the underlying
security at the stated exercise price at any time prior to the expiration of the
option, regardless of the market price of the security. The premium paid to the
writer is in consideration for undertaking the obligations under the option
contract. A listed put option gives the purchaser the right to sell to a
clearing corporation the underlying security at the stated exercise price at any
time prior to the expiration date of the option, regardless of the market price
of the security. Put and call options purchased by a Fund will be valued at the
last sale price or, in the absence of such a price, at the mean between bid and
asked prices.
A Fund's obligation to sell a security subject to a covered call option
written by it, or to purchase a security subject to a secured put option written
by it, may be terminated prior to the expiration date of the option by the Fund
executing a closing purchase transaction, which is effected by purchasing on an
exchange an option of the same series (i.e., same underlying security, exercise
price, and expiration date) as the option previously written. Such a purchase
does not result in the ownership of an option. A closing purchase transaction
will ordinarily be effected to realize a profit on an outstanding option, to
prevent an underlying security from being called, to permit the sale of the
underlying security, or to permit the writing of a new option containing
different terms on such underlying security. The cost of such a liquidation
purchase plus transaction costs may be greater than the premium received upon
the original option, in which event the Fund will have incurred a loss in the
transaction. An option position may be closed out only on an exchange which
provides a secondary market for an option of the same series. There is no
assurance that a liquid secondary market on an exchange will exist for any
particular option. A covered call option writer, unable to effect a closing
purchase transaction, will not be able to sell the underlying security until the
option expires or the underlying security is delivered upon exercise with the
result that the writer in such circumstances will be subject to the risk of
market decline in the underlying security during such period. A Fund will write
an option on a particular security only if the Adviser believes that a liquid
secondary market will exist on an exchange for options of the same series which
will permit the Fund to make a closing purchase transaction in order to close
out its position.
When a Fund writes a covered call option, an amount equal to the net
premium (the premium less the commission) received by the Fund is included in
the liability section of the Fund's statement of assets and liabilities as a
deferred credit. The amount of the deferred credit will be subsequently
marked-to-market to reflect the current value of the option written. The current
value of the traded option is the last sale price or, in the absence of a sale,
the average of the closing bid and asked prices. If an option expires on the
stipulated expiration date or if the Fund enters into a closing purchase
transaction, it will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the net premium received when the option is sold), and the
deferred credit related to such option will be eliminated. Any gain on a covered
call option may be offset by a decline in the market price of the underlying
security during the option period. If a covered call option is exercised, the
Fund may deliver the underlying security held by it or purchase the underlying
security in the open market. In either event, the proceeds of the sale will
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be increased by the net premium originally received, and the Fund will realize a
gain or loss. If a secured put option is exercised, the amount paid by the Fund
involved for the underlying security will be partially offset by the amount of
the premium previously paid to the Fund. Premiums from expired options written
by a Fund and net gains from closing purchase transactions are treated as
short-term capital gains for Federal income tax purposes, and losses on closing
purchase transactions are short-term capital losses.
Futures Contracts. A futures contract is a bilateral agreement
providing for the purchase and sale of a specified type and amount of a
financial instrument, or, in the case of futures contracts on indices of
securities, for the making and acceptance of a cash settlement, at a stated time
in the future for a fixed price. By its terms, a futures contract provides for a
specified settlement date on which, in the case of the majority of interest rate
futures contracts, the fixed income securities underlying a contract are
delivered by the seller and paid for by the purchaser, or on which, in the case
of a stock index futures contract, an amount equal to a dollar amount multiplied
by the difference between the value of a stock index at the close of the last
trading day of the contract and the value of such index at the time the futures
contract was originally entered into is settled between the purchaser and seller
in cash. The purchase or sale of a futures contract differs from the purchase or
sale of a security in that no purchase price is paid or received at the time the
contract is entered into. Instead, an amount of cash or cash equivalents, the
value of which may vary but is generally equal to 2% or less of the value of the
contract, must be deposited with the broker as initial deposit or "margin."
Subsequent payments to and from the broker, referred to as "variation margin,"
are made on a daily basis as the value of the index underlying the futures
contract fluctuates, making positions in the futures contract more or less
valuable, a process known as "marking to the market."
At any time prior to the expiration of a futures contract, a trader may
elect to close out a Fund's position by taking an opposite position, subject to
the availability of a secondary market, which will operate to terminate the
initial position. At that time, a final determination of variation margin is
made and any loss experienced by a party is required to be paid to the exchange
clearing corporation, while any profit due to a party must be delivered to it.
Futures contracts differ from options in that they are bilateral
agreements, with both the purchaser and the seller equally obligated to complete
the transaction. Futures contracts call for settlement only on the expiration
date, and cannot be "exercised" at any other time during their term.
Options on Futures Contracts. An option on a futures contract gives the
purchaser (the "holder") the right, but not the obligation, to enter into a
"long" 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,
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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.
An option, whether based on a futures contract, a stock index or an
equity security, becomes worthless to the holder when it expires. A position in
an option may be terminated by the purchaser or seller prior to expiration by
effecting a closing purchase or sale transaction subject to the availability of
a secondary market, which is the purchase or sale of an option of the same
series (i.e., the same exercise price and expiration date) as the option
previously purchased or sold. The difference between the premiums paid and
received represents the party's profit or loss on the transaction.
The use of futures contracts and options does involve certain
transaction costs and risks. 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 holdings. 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. While a Fund will establish a future 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 such Fund to purchase
or sell the instrument underlying the position, make or receive a cash
settlement, or meet ongoing variation margin requirements. 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. Income earned from transactions in
futures contracts and options thereon would be treated in part as a short-term,
and in part as a long-term, capital gain and, if not offset by net realized
capital losses, generally would be subject to Federal income taxes.
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 set aside cash, U.S. government securities or
other high quality debt obligations equal to the amount of the commitment in a
separate account. Normally, the custodian will set aside portfolio securities to
satisfy a purchase commitment, and in such a case a Fund may be required
subsequently to place additional assets in the separate account in order to
ensure that the value of the account remains equal to the amount of the Fund's
commitment. Because a Fund will set aside 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.
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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.
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
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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.
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
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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 cancelled; (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.
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 nationally recognized
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statistical rating organizations represent their opinions as to the quality of
Municipal Securities. It should be emphasized, however, that these ratings are
general and are not absolute standards of quality, and Municipal Securities with
the same maturity, interest rate, and rating may have different yields while
Municipal Securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to its purchase by a 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.
Although the Municipal Income Fund and the State Municipal Bond Funds
invest primarily in Municipal Securities with long-term maturities, the
Intermediate Municipal Bond Fund and the State Intermediate Municipal Bond Funds
invest primarily in Municipal Securities with intermediate-term maturities, they
may also purchase short-term General Obligation Notes, Tax Anticipation Notes,
Bond Anticipation Notes, Revenue Anticipation Notes, Tax-Exempt Commercial
Paper, Construction Loan Notes, and other forms of short-term loans. Such
instruments are issued with a short-term maturity in anticipation of the receipt
of tax funds, the proceeds of bond placements, or other revenues. The State
Intermediate Municipal Bond Funds may also invest in long-term tax-exempt
instruments.
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
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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 Florida, Georgia, Maryland, North Carolina, South Carolina, Tennessee,
Texas, or Virginia issuers, the Trust 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 generally, or Florida,
Georgia, Maryland, North Carolina, South Carolina, Tennessee, Texas, or Virginia
Municipal Securities specifically, 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.
The following information relating to the State Intermediate Municipal
Bond Funds and the State Municipal Bond Funds supplements information relevant
to each of those Funds in the related Prospectuses.
Florida. Florida is now the fourth most populous state with an
estimated 1995 population of 14,141,047. By the year 2000 population will likely
exceed 15 million. Population growth has historically been driven by retirement
migration with local economies weighted heavily in tourism and agriculture. Over
the past twenty years, retirement, agriculture and tourism have been
complemented by high technology jobs, service sector jobs and international
trade. In the meantime, the three traditional industries have taken on a global
character. Trade and tourism have become international and this has fueled
foreign retirement migration. The character and dynamism of Florida has changed
considerably in recent decades and the state is considered a bellwether
indicator for the health of national economic trends.
The health of the national economy plays an important role in Florida's
fiscal soundness and economic development. During the period of strong national
expansion in the mid to late 1980's, Florida's population growth reached a peak
of 400,000 per year. Today, as this country enters its fifth year of economic
expansion, population growth in Florida exceeds 250,000 per year.
The emergence of Florida as one of the most populous states in the
United States has placed significant pressure on state and local government to
provide infrastructure and municipal and urban services. During the 1980's
growth was so rapid that a significant backlog of need emerged which, today, is
still being filled. Across the state, construction of new highway systems,
airport expansions, local school and university systems, hospitals and jails are
being put in place. Much of this growth is being funded by bonded revenues
secured by the expanding real property tax base. During the ten year period
ending in 1994, Florida real property values increased 70 percent from $376
billion to $641 billion. Residential property values account for nearly two
thirds of all value accounting for over $400 billion in value. Despite the rapid
population growth and resulting increases in improved residential properties,
commercial and industrial valuations have also grown consistently. Today these
values still account for 17 percent
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of Florida property values as they did a decade ago. There is now over $100
billion in real property value in commercial and industrial properties in
Florida.
One reason commercial and industrial values have increased is the
strategic nature of the industries that have located and grown in the state. The
Florida industrial base is concentrated in high technology industries such as
electronics, medical equipment, laser optics, computer simulation and space
travel. As a result, while defense contract spending has declined nationally by
over 20 percent from 1985-1994, Florida's value of defense contracts has
increased 12 percent to nearly $6 billion over the same period.
With increasing demands for services and comparatively low taxes,
Florida has experienced a rapid growth in the volume of bond debt. Because of
rapid population growth however, per capita State debt remains well below the
national average. In 1992, the outstanding state debt, among all states, was
$1,461 per capita compared with $912 in Florida.
Part of the focus on needs and services at the state level comes from
the philosophy behind Florida's growth management legislation, passed in 1985.
This legislation recognized the need to preserve Florida's unique quality of
life in the face of rapid growth and development and expanding demands for
physical infrastructure and social services. One of the key components of this
legislation is a rule requiring infrastructure be in place concurrent with new
development. In addition, the growth management legislation gave rise to the
designation of developable urban areas through an update of all locally land use
plans, a policy to discourage urban sprawl and a program to purchase
environmentally sensitive lands.
The Growth Management Act of 1985 and the concurrency rule has affected
Florida's economic growth and development in some regions of the state and could
continue to impact the economy in the future. In addition, the location of new
development will be more carefully scrutinized with respect to environmental
sensitivity and natural resource limitations. Growth management legislation will
affect all areas of the state with varying degrees of impact depending on the
specific local conditions such as, existing infrastructure capacity, local
environmental constraints, and limitations on natural resources such as potable
water and habitat preservation. Having now experienced ten years subject to
growth management rules, it appears that The Growth Management Act of 1985 has,
on balance, been beneficial. Growth management has helped improve quality of
life, ease infrastructure shortfalls and focused the State agenda on preserving
quality of life through growth management regulation and other state funded
environmental land preservation programs.
At the regional level, local economies within Florida perform
differently according to their urban or rural qualities and level of economic
diversification. The spectrum of local economies spans dense urban centers such
as Miami and Tampa to rural agricultural regions of citrus, cattle ranching and
sugar cane production.
Southeast Florida includes Miami, Fort Lauderdale, West Palm Beach and
the Florida Keys. This area is highly urban and economically diverse. Tourism,
retirement, high technology computer manufacturing, medical industries,
international trade, winter vegetable crops and sugar cane production are the
prominent features of this regional economy. The area accounts for just
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under one-third of the state's population. Hurricane Andrew struck south Dade
County in fall, 1992. Some 80,000 homes were destroyed along with local
businesses. During the four years since the hurricane, approximately 80 to 90
percent of the homes have been restored. The restoration and rebuilding process
is now essentially complete. Over the long term, the effects of the hurricane
may speed the suburbanization of South Florida. Other factors helping to
diminish agriculture locally include environmental preservation efforts in
sugarcane lands, and the effect of foreign competition due to NAFTA on local
winter fruit and vegetable growers.
In Broward and Palm Beach Counties, in particular, growth management's
concurrency requirements have played a significant role in limiting economic
expansion as compared with other regions of the state because of the lack of
infrastructure capacity. Community consensus based long range planning efforts
recently have been undertaken in northern Palm Beach County. These efforts are a
recognition of the pause in growth that has occurred and over time will help the
area accommodate new development. More recently improved infrastructure and
access in Southwest Broward has fueled development there.
Southwest Florida has emerged as a strong growth market. Traditionally
very retirement oriented, the region's economy has begun to diversify through
increased employment opportunities and migration southward of citrus production.
Increased employment opportunity has occurred due to the overall size of the
market and improvements in infrastructure capacity, notably the completion of
Interstate 75 in Collier County and the Southwest Regional Airport located in
Fort Myers. The improvement in transportation access also has helped tourism and
as a result indirectly buoyed population growth rates by providing exposure and
increased awareness of the region as a retirement destination among visitors.
The State of Florida has committed to building its tenth public university in
Lee County, near the Fort Myers airport. The university will accommodate 10,000
students within a decade and provide opportunities for synergy between industry
and education. Finally, recent updates to the Lee County comprehensive plan have
been beneficial with respect to growth management and policy revisions that are
more accommodating of future growth and development.
Central Florida is a premier world-class resort/vacation destination.
The presence of Disney World, studio theme parks and other tourist oriented
recreational parks drives the Central Florida economy. While the total size of
the market has grown rapidly, the economy is dependent on tourism and population
growth. Locally, the tourism industry has been more stable and seen better
growth over the past three decades than either the manufacturing or services
section. Two additional local industry concentrations, the laser/optical
research node and motion picture industries are helping to diversify the local
economy. Universal Studios has announced an expansion of its motion picture and
theme park facilities. Expansion began in 1995 and will employ an additional
14,000 workers when completed. Disney World has also financed and begun
construction of its fourth theme park covering 500 acres and adjacent
residential and commercial developments. Strong growth in tourism and large land
areas available for expansion suggest this region will lead the state in
population growth through the mid to late 1990s. International tourism has
fueled the growth of an international retirement and second home market
throughout Florida. Today, in the tourist areas of the market, one fifth of new
homes built are sold to foreign retirees or vacation home owners. Places of
origin include England, Germany,
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South America, and Puerto Rico. International retirement markets are also
growing in Southwest and Southeast Florida.
North Florida is rural in many areas. Jacksonville is the major city in
North Florida. The local economy is dominated by the logging and paper
industries, defense and retirement. The insurance industry also has a strong
presence in Jacksonville. Growth in North Florida peaked in the mid-1980s,
coinciding with the military defense buildup, prior to the full implementation
of growth management legislation. As urbanization and living costs increase in
the south and central parts of the state, population growth from national
retirement migration sources are increasing.
The Florida Panhandle is quite rural with reliance on tourism, defense
and state government for employment opportunities. This areas of the state has
the lowest per capita incomes and the smallest volume of population growth. With
the uncertainty of state budget funding in recent years and continuing defense
cutbacks, strong growth in this region of the state is not expected. Coastal
counties, however, remain attractive to continued economic development and
retirement migration because of the pristine beaches along the Gulf of Mexico.
In general, pursuant to the Florida Constitution and certain statutory
provisions, there are two basic types of obligations that may be issued in the
State of Florida: general obligation bonds and revenue bonds.
General obligation bonds are also known as full faith and credit bonds
because their repayment is based on the general credit and taxing power of the
borrowing government. The ad valorem tax is the most common source of revenue
pledged for the repayment of general obligation bonds. Being tax-supported,
general obligation bonds are typically used to finance the capital portion of
tax supported general purpose governmental projects, with public buildings,
roads, criminal justice facilities, and schools being the most common. Only
units of local government with taxing power can levy and collect ad valorem
taxes. The State of Florida has no ad valorem taxing power. General obligation
bonds payable from ad valorem taxes and maturing more than twelve months (other
than certain refunding bonds) after issuance may be issued to finance capital
projects authorized by law and only if the issuance of such bonds is approved by
the qualified electors.
Revenue bonds are obligations of a unit of government payable solely
from the revenues of a particular enterprise, such as a water and sewer system,
or from the revenues derived from a particular facility or user, or from non-ad
valorem revenues, such as the sales tax, or from other special funds authorized
to be pledged as additional security. Revenue bonds may also be payable from
non-specific revenues budgeted each year by the issuer. Unlike general
obligation bonds, revenue bonds do not constitute a debt of the issuing unit or
a pledge of its faith and credit, and they are not backed by the issuer's taxing
power.
A test was developed by the Florida Supreme Court for analyzing the
constitutional ability of an issuer to issue revenue bonds where a significant
portion of the proceeds would be used for private or non-governmental benefit.
Generally, these types of securities are referred to as industrial revenue bonds
or private activity bonds. Unless a particular use for the proceeds of a private
activity bond has been constitutionally or legislatively sanctioned (such as
multifamily and
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single family housing revenue bonds) or tested in the courts, a determination
must be made that the project to be financed with the proceeds of the private
activity bond will serve a paramount public purpose. The paramount public
purpose doctrine is designed to protect public funds from being exploited in
assisting or promoting private ventures when the public would be, at the most,
only incidentally benefited.
Generally, an issuer may pledge something less than all of its
available non-ad valorem revenues without voter approval, subject to the
parameters established by the Florida Supreme Court. The Florida Supreme Court,
in Volusia v. State, 417 So.2d 968 (Fla. 1982), refused to validate capital
improvement bonds which were to be used for the construction of a new jail and
which were secured by a pledge of all legally available, unencumbered revenues
of the county other than its ad valorem taxes, and by a further pledge to
maintain the programs and projects from which the unencumbered revenues were
derived. The Court held that the practical effect of such a pledge was to
require increased ad valorem taxes. The Court reasoned that a general pledge of
all available non-ad valorem revenues and the covenant by the issuer to maintain
the source of such non-ad valorem revenues was thought to have more than a mere
incidental affect on the ad valorem taxing power of an issuer, and therefore a
bond referendum would be required. The Florida Supreme Court, in State v.
Brevard County, 539 So.2d 461 (Fla. 1989), however, confirmed a lower court bond
validation where a county's obligations to make payments under a lease-purchase
arrangement were to be secured solely by non-ad valorem revenues budgeted for
such purpose during any fiscal year. The arrangement did not violate the State
Constitutional provision requiring voter approval in issuing the certificates of
indebtedness since the County did not also covenant to maintain the programs and
projects from which the non-ad valorem revenues were to be derived.
The Florida courts have validated debt obligations commonly referred to
as certificates of participation or "COPS." In a typical COPS transaction, the
issuer leases either real or personal property from a special purpose
corporation. The special purpose corporation assigns its rights to the lease
payments to a corporate trustee who in turn issues certificates evidencing an
undivided proportionate interest of the owners of such certificates to receive
the lease payments. The lease payments made by the issuer may be derived from
both ad valorem and non-ad valorem revenues of the issuer. Although ad valorem
taxes can be used to make the lease payments, the Florida Supreme Court has held
that a referendum is not required because the obligation to make lease payments
is an annual obligation subject to renewal each year. If the issuing body elects
not to renew its lease for the next succeeding year and therefore fails to
appropriate the necessary moneys to make lease payments, the holders of the COPS
would be limited to the remedies available under the lease. At least one Florida
court has upheld the right of a governmental unit to not exercise the annual
renewal option of its lease.
When a mortgage, with a right of foreclosure, on real or personal
property (owned by a unit of government) is given to secure a bond, the Florida
courts have held that a pledge of such mortgage requires voter approval. In
effect, ad valorem taxes are indirectly pledged because, as the Florida Supreme
Court reasoned, the legislative body affected by such foreclosure might feel
"morally compelled" to levy taxes to prevent the loss of assets through
foreclosure. As a result, the majority of revenue bonds issued in the State of
Florida are not additionally secured by a
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mortgage on the governmental property being financed. This prohibition is
applicable even if the issuer has no taxing power.
In Florida, the Division of Bond Finance has authority over the
issuance of State bonds pledging the full faith and credit of the State and the
issuance of revenue bonds payable solely from funds derived from sources other
than State tax revenues or rents or fees paid from State tax revenues.
Pursuant to the Florida Constitution, moneys sufficient to pay debt
service on State bonds must be appropriated as the same become due. Furthermore,
to the extent necessary, all State tax revenues, other than trust funds, must be
available for such appropriation purposes.
At the November 1994 general election, voters in the State approved an
amendment to the Florida Constitution limiting the amount of taxes, fees,
licenses and charges imposed by the State and collected during any fiscal year
to the amount of revenues allowed for the prior fiscal year, plus an adjustment
for growth. Growth is defined as the amount equal to the average annual rate of
growth in Florida personal income over the most recent twenty quarters times the
State revenues allowed for the prior fiscal year. The revenues allowed for any
fiscal year can be increased by a two-thirds vote of the State Legislature. The
limit is effective starting with fiscal year 1995-1996. Any excess revenues
generated will be deposited in the budget stabilization fund until it is fully
funded and then refunded to taxpayers. Included among the categories of revenues
which are exempt from the proposed revenue limitation, however, are revenues
pledged to state bonds and charges for services imposed by local, regional or
school district governing bodies.
The total outstanding principal of State bonds pledging the full faith
and credit of the State may not exceed fifty percent of the total tax revenues
of the State for the two preceding fiscal years, excluding any tax revenues held
in trust.
State bonds pledging the full faith and credit of the State, except
certain refunding bonds, generally may be issued only to finance or refinance
the cost of State fixed capital outlay projects subject to approval by a vote of
the electors. However, State bonds pledging the full faith and credit of the
State may be issued without a referendum to finance the construction of air and
water pollution control and abatement and solid waste disposal facilities to be
operated by a political subdivision of the State or by an agency of the State.
All forms of taxation other than ad valorem taxes are preempted to the
State, except as provided by general law. The State is prohibited from
collecting ad valorem taxes, which are taxes that are levied on real estate or
tangible personal property.
Revenue bonds may be issued by the State of Florida or its agencies
without voter approval only to finance or refinance the cost of state capital
projects payable solely from funds derived from sources other than state tax
revenues or rents or fees paid from state tax revenues.
Bonds issued pursuant to the State Bond Act must be validated in
accordance with Florida Statutes. Once an issuer decides to finance a project
with bonds issued pursuant to the State Bond Act, a bond validation proceeding
is held in circuit court to determine whether the proposed
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bond issuance complies with Florida law. The court makes findings on the
questions of whether the issuing body had the power to incur bonded debt and
whether it exercised that power in accordance with the law. The court may not
weigh the fiscal feasibility of the proposed bonds in the validation
determination. The circuit court judgment is final on all matters, other than
constitutional issues, raised at the validation hearing after time for appeal to
the Supreme Court of Florida has elapsed. Refunding bonds and bonds issued to
finance or refinance capital outlay projects for the system of public education
are not required to be validated.
The legislature has the power to confer on political subdivisions the
power to issue bonds, notes and other forms of indebtedness, except as otherwise
restricted by State and federal constitutional provisions, and such power is
conferred on municipal corporations, cities, counties and a variety of other
specially created districts and authorities. The bond validation process
described above is also available to such units of local government. In most
cases, bond validations are not statutorily mandated and many general obligation
and revenue bond issues have not been validated.
Generally, the Florida Constitution and Florida Statutes require that
the budget of the State and that of the units of local government in the State
be kept in balance from currently available revenues during each fiscal year. If
revenues collected during a fiscal year are less than anticipated, expenditures
must be reduced in order to comply with the balanced budget requirement.
Florida Statutes provide for a statewide maximum bond interest rate
which is flexible with the bond market and from which are exempted bonds rated
in one of the three highest ratings by nationally recognized rating services.
Nevertheless, upon request of a governmental unit, the State Board of
Administration may authorize a rate of interest in excess of the maximum rate,
provided relevant financial data and information relating to the sale of the
bonds is submitted to the State Board.
The Florida Sunshine Law, among other things, precludes public
officials from meeting with respect to the issuance of bonds other than at duly
noticed public meetings of the governmental entity. These provisions apply to
all meetings of any board or commission of any State agency or authority, or of
any county, municipal corporation, or political subdivision. No resolution,
rule, or formal action is considered binding except as taken at such duly
noticed public meetings.
Georgia. The state government of Georgia has one of the lowest debt
levels, per capita, of all states in the United States, which is reflective of
the very conservative fiscal approach taken by elected state officials, even
through the state has enjoyed a strong economy over the past few years.
Typically, general obligation bonds of the state are issued pursuant to the
powers granted under Article VII, Section IV of the Constitution of the State of
Georgia (the "Georgia Constitution"), which provides that the bonds are the
direct and general obligations of the state. The key language is provided under
Article VII, Section IV, Paragraph VI of the Georgia Constitution which provides
as follows:
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"The full faith, credit and taxing power of the state are hereby pledged
to the payment of all public debt incurred under this article and all
such debt and the interest on the debt shall be exempt from taxation
(emphasis added). Such debt may be validated by judicial proceedings in
the manner provided by law. Such validation shall be incontestable and
conclusive."
The Georgia Constitution further mandates that the General Assembly "shall raise
by taxation and appropriate each fiscal year . . . such amounts as are necessary
to pay debt service requirements in such fiscal year on all general obligation
debt." The Georgia Constitution further provides for the establishment of a
special trust fund which is designated the "State of Georgia General Obligation
Debt Sinking Fund" which is used for the payment of annual debt service
requirements on all general obligation debt.
There are debt limitations provided under Article VII, Section IV,
Paragraph II(b)-(e) of the Georgia Constitution which essentially provide that
the cumulative annual debt service for both general obligation debt and
guaranteed revenue debt shall not exceed 10% of the total revenue receipts, less
refunds paid to the state treasury in the fiscal year immediately preceding the
proposed issuance of any new debt. The Georgia Constitution prohibits state
departments and agencies from circumventing the debt limitation provisions by
not allowing such agencies to execute contracts which may be deemed to
constitute a security for bonds or other public obligations. (See Article VII,
Section IV, Paragraph IV of the Georgia Constitution.)
The State of Georgia may incur: "Public debt to supply a temporary
deficit in the state treasury in any fiscal year created by a delay in
collecting the taxes of that year. Such debt shall not exceed, in the aggregate,
5% of the total revenue receipts, less refunds, of the state treasury in the
fiscal year immediately preceding the year in which such debt is incurred." (See
Georgia Constitution, Article VII, Section IV, Paragraph I(b).) Since this
provision of the Constitution was enacted, there has been no temporary debt
incurred by the state.
Virtually all debt obligations represented by bonds issued by the State
of Georgia, counties or municipalities or other public subdivisions, and public
authorities require validation by a judicial proceeding prior to the issuance of
such obligation. The judicial validation makes these obligations incontestable
and conclusive, as provided under the Georgia Constitution.
The State of Georgia operates on a fiscal year beginning on July 1 and
ending on June 30. Each year the State Economist, the Governor and the State
Revenue Commissioner jointly prepare a revenue forecast upon which is based the
state budget which is considered, amended and approved by the Georgia General
Assembly. On June 30, 1994 the state had a revenue shortfall reserve fund of
$267,195,474. Total net revenue collections for the fiscal year ending on June
30, 1995 were $9,115,243,249, which represented a 7.9% increase over fiscal year
1994 collections of $8,444,864,060. Additionally, Georgia received in fiscal
year 1995, $502,286,000 in revenue from the Georgia Lottery Corporation; all
lottery revenues being earmarked for educational expenditures.
Georgia has a very bright economic future highlighted by a $2 billion
stimulus to the economy which is expected from Atlanta's hosting of the 1996
Summer Olympic Games.
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Manufacturing activity, particularly in the textile, apparel and carpet sectors,
has increased dramatically as a result of increased home building. The real
estate/construction industry appears to be emerging from a recession that had
been caused by over-building of commercial office space and industrial parks in
the late 1980s. In recent years, Georgia has enjoyed the economic stimulus
caused by a number of major corporate relocations led by United Parcel Service
of America, Inc., which moved its World Headquarters from Greenwich,
Connecticut, to Atlanta. This move was followed shortly by Holiday Inn
Worldwide, which moved its headquarters to Atlanta from Memphis.
On December 6, 1994, the United States Supreme Court reversed the
Georgia Supreme Court's decision in Reich v. Collins, 263 Ga. 602 (1993) and
held that Georgia resident federal retirees were entitled to refunds of pre-1989
taxes on federal retirement pension benefits. In response, the Governor signed
H.B. 90 on February 1, 1995, permitting federal retirees who file timely claims
to receive refunds for such taxes for tax years 1985-1988. Total potential
liability is approximately $110,000,000 which is now being paid in four equal
annual installments, the first of which occurred on October 15, 1995. The Reich
case has now been dismissed.
The United States Supreme Court in the decision of Bacchus Imports,
Ltd. v. Dias, 468 U.S. 263 (1994), held that a Georgia statute assessing lower
alcoholic beverage taxes against domestic producers than out-of-state producers
was unconstitutional. In the wake of Bacchus, James B. Beam Distilling Company
v. State, 501 U.S. 529 (decided June 20, 1991) held that out-of-state producers
had a right to assert claims for refunds for the unlawful alcohol beverage taxes
levied against them, but that the enforceability of such claims would be subject
to state statutes of limitations and other procedural bars. On remand, the
Fulton County Superior Court held that statutes of limitations and other
procedural bars would preclude Beam's recovery for refunds, where applicable.
After having its writ of certiorari denied by the United States Supreme Court,
Beam has filed a petition for rehearing, which has been denied. Currently,
Georgia's statute of limitations (O.C.G.A. ss. 48-2-85) has run on all
applicable pre-Bacchus claims for refund except for five claims currently
pending, which seek tax refunds in the amount of $31,700,000, plus interest.
Age International, Inc. v. State, Fulton County Superior Court, Civil
Case Number E-3793, and Age International, Inc. v. Miller, Fulton County
Superior Court, Civil Case Number E-25073 were filed by out-of-state producers
of alcoholic beverages seeking (i) refunds totaling $119,000,000.00 for alcohol
import taxes imposed under Georgia's post-Bacchus statute (O.C.G.A. ss. 3-4-60)
and (ii) declaratory and injunctive relief. These claims account for an
estimated 99% of all such taxes paid pursuant to the statute and which would not
be barred by the statute of limitations. The refund cases are still pending in
the trial court. The declaratory/injunctive relief case was dismissed by the
District Court, such dismissal being affirmed by the Eleventh Circuit Court of
Appeals; a petition for rehearing was denied therefore giving the state a
favorable verdict on this issue.
Local school boards have filed suit against Georgia in Board of Public
Education for Savannah/Chatham County v. State of Georgia, United States
District Court, Civil Case Number CV-490-101 and DeKalb County v. State of
Georgia, State of Georgia Court of Appeals, Civil Case Number 95-9149. The local
school boards have contested the manner in which
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desegregation policies were implemented. In Savannah/Chatham County, the
Savannah Board originally sued for $30,000,000, challenging the application of
state desegregation funding formulae, but the District Court approved a formula
requiring a State payment of approximately $8,900,000 through and including June
30, 1994. The local school boards appealed the decision to the Eleventh Circuit
Court of Appeals. A preliminary settlement has been reached, in which the state
has paid $8,925,000 and discussions continue on a proposed formula for
allocating student transportation costs and additional payments may have to be
made depending on the final agreement on costs accruing during the settlement
negotiations. In DeKalb County, the plaintiffs filed suit for $67,500,000 on a
related issue; the District Court held the funding formula was contrary to state
law. The Court reduced a potential state funding obligation of $34,000,000 to
approximately $28,000,000. Notices of appeal, however, have been filed with the
Eleventh Circuit Court of Appeals. Approximately five school districts may file
similar claims.
Leslie K. Johnsen v. Collins, filed in Chatham County, involved
constitutional challenges to Georgia's transfer ("impact") fee (O.C.G.A. ss.
40-3-31.1) was challenged under the commerce clause. This case has been
voluntarily dismissed and the plaintiff has joined in a similar lawsuit which
was filed in the Superior Court of Fulton County (Mueller v. Collins). The
aggregate potential liability of the state is estimated to be $20,600,835 for
the period from May, 1992 to February 15, 1995. Since June 7, 1995, all amounts
have been paid into an escrow account and collections continue at the rate of
$500,000 to $600,000 per month.
On February 9, 1996 the Georgia General Assembly repealed the import
fee statute and this has effectively eliminated the legal obligation to collect
the fees. The escrow account as of February 12, 1996 contained a total of
$3,813,574 which could be used to partially fund refund claims depending on the
ultimate outcome of the Mueller case.
In Daniel W. Tedder v. Marcus E. Collins, Sr., a class action was filed
in the Cobb County Superior Court challenging a revenue regulation authorizing
the collections on sales tax on sales of used transportation equipment where
neither the buyer nor the seller was engaged in the "regular business" of buying
or selling such tangible property. The trial court declared the regulation
invalid. Accordingly, $21,900,000 in refunds have been paid, with a possible
aggregate exposure of $30,000,000, plus interest. The revenue regulation has
been rescinded.
On September 1, 1994, the case of Buskirk and Estill v. State of
Georgia, et al., was filed in the Superior Court of Fulton County Georgia, Case
No. E-31547, purportedly to be filed on behalf of all "Classified employees of
the State of Georgia or its agencies and departments during all or part of
fiscal years 1992 through 1995, who are eligible to receive within grade pay
increases and who would have received same were it not for a freeze of within
grade pay increases." The case is pending and discovery completed. The Attorney
General's Office believes that the State has an adequate defense to all claims,
but in the event the plaintiffs are successful, the potential liability to the
State for these retroactive pay raises could be as much as $295 million.
On August 2, 1995, a petition was filed in Dekalb County Superior court
(Civil Action File No. 95-10114-4) by the Lombard Corporation against Marcus
Collins, Commissioner of the Georgia Department of Revenue, and Tom Scott, Tax
Commissioner for Dekalb County. This
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petition attacks the constitutionality of the Georgia intangibles tax. In the
event the intangibles tax is found to be unconstitutional, the financial impact
on the State will be marginal, but city and county governments, as well as local
Boards of Education, will collectively lose approximately $40 million per year
in intangibles tax revenues.
On February 21, 1996, the United States Supreme Court ruled a similar
North Carolina intangibles tax facially discriminatory and unconstitutional in
the case of Fulton Corporation v. Janice H. Faulkner, Secretary of Revenue of
North Carolina, Case No. 94-1239. It is expected that the judicial ruling in the
Lombard case will follow this United States Supreme Court decision, and the
Georgia intangibles tax will be found to be unconstitutional. There is a chance
that the Court in the Lombard case will sever the intrastate exemption for stock
owned in Georgia corporations, and uphold the balance of the intangibles tax
stature.
The above-referenced information is based on available public documents
and oral representations made by officials at the State Attorney General's
Office, the Georgia Department of Revenue and contained in the Significant
Contingent Liability representation made in a recent Preliminary Official
Statement accompanying a September 1995 State of Georgia General Obligation Bond
issue.
Maryland. The public indebtedness of the State of Maryland and its
instrumentalities is divided into three basic categories. The State issues
general obligation bonds, to the payment of which the State ad valorem property
tax is exclusively pledged, for capital improvements and for various
State-sponsored projects. The Maryland Department of Transportation issues
limited, special obligation bonds for transportation purposes payable primarily
from specific, fixed-rate excise taxes and other revenues related mainly to
highway use. Certain authorities issue obligations payable solely from specific
non-tax, enterprise fund revenues, and for which the State has no liability and
has given no moral obligation assurance. The State and certain of its agencies
also have entered into a variety of lease purchase agreements to finance the
acquisition of capital assets. These lease agreements specify that payments
thereunder are subject to annual appropriation by the General Assembly.
At least since the end of the Civil War, the State has paid the
principal of and interest on its general obligation bonds when due. Neither the
Maryland Constitution nor the public general laws of Maryland impose any general
debt limit. Although the State has the authority to make short-term borrowings
in anticipation of taxes and other receipts up to a maximum of $100 million, the
State in the past has not issued short-term tax anticipation notes or made any
other similar short-term borrowings for cash flow purposes. The State has not
issued bond anticipation notes except in connection with a State program to
ameliorate the impact of the failure of certain State-chartered savings and loan
associations in 1985; all such notes were redeemed without the issuance of debt.
The State Constitution prohibits the contracting of State debt unless
authorized by a law providing for the collection of an annual tax or taxes
sufficient to pay the interest when due and to discharge the principal within 15
years of the date of debt issuance. The Constitution also provides that the
taxes levied for this purpose may not be repealed or applied to any other
purpose until the debt is fully discharged. As a matter of practice, general
obligation bonds, other
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than small denomination bonds and refunding bonds, are issued to mature in
serial installments designed to provide payment of interest only during the
first two years and an approximately level annual amortization of principal and
interest over the remaining years.
The State has financed and expects to continue to finance the
construction and acquisition of various facilities and equipment through
conditional purchase, sale-leaseback, and similar transactions. All of the lease
payments under these arrangements are subject to annual appropriation by the
General Assembly. In the event that appropriations are not made, the State may
not be held contractually liable for the payments. These transactions are
subject to approval by the Board of Public Works.
1994 Budget -- On April 5, 1993 the General Assembly approved the
Budget for fiscal year 1994. The 1994 Budget Program of $12.5 billion is 3.4%
above the spending level for 1993. The 1994 Budget does not include any funds
for employee cost-of-living increases or selective salary adjustments, but does
include funds for employee in-grade salary increments. The Budget does not
include any proposed expenditures dependent upon additional revenue from new or
broad-based taxes; the only additional revenues are to be derived from fees in
the health care and insurance regulation areas.
The operating budget for fiscal year 1994 is to be funded with $6,499
million in general funds, $3,221 million in special and higher education funds,
and $2,752 million in federal funds. The 1994 Budget, according to the
Department of Fiscal Services, is within the spending level recommended by the
Spending Affordability Committee.
1995 Budget -- On April 5, 1994, the General Assembly approved the
budget for fiscal year 1995. The Budget includes, among other things: (i)
sufficient funds to meet all specific statutory funding requirements; (ii)
sufficient funds to meet the actuarily recommended contributions for the seven
retirement systems, determined on a basis consistent with prior years' practice;
(iii) sufficient general funds for the Annuity Bond Fund to maintain the State
property tax rate at 21(cent) per $100 of assessed valuation; (iv) $2.6 billion
in aid to local governments (reflecting a $102.4 million increase over 1994 that
provides for substantial increases in education, health, and police aid); (v) a
$20 million general fund appropriation to the Dedicated Purpose Account of the
State Reserve Fund to reduce the liabilities for the State Employee Health
Insurance program; and (vi) $104.8 million in general fund deficiency
appropriations for fiscal year 1994, of which $60.5 million is an appropriation
to the Revenue Stabilization Account of the State Reserve Fund as previously
mandated by the General Assembly. The Budget includes $59.6 million in general
funds for a 3% employee cost-of-living adjustment with a minimum increase of
$800 per employee.
The operating budget is to be funded with $6,886 million in general
funds, $2,396 million in special funds, $1,154 in higher education funds, and
$2,935 million in federal funds.
The State's fiscal year 1995 capital program is to be funded with $380
million in general obligation bonds, $54.6 million in general funds appropriated
in the operating budget, $943.9 million in special and federal funds (of which
$774.6 million is appropriated to the Department of Transportation), $201.7
million in revenue bonds, and $23.5 million in
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reappropriated prior years' capital appropriations. The general obligation bond
financed program includes $170 million for State facilities, $82 million for the
construction and renovation of local elementary and secondary schools, and $128
million for various other grants and loan projects.
When the 1995 budget was enacted, it was estimated that the general
fund surplus on a budgetary basis at June 30, 1995, would be approximately $9.7
million; the current estimate is $49.5 million, which reflects the actual
general fund surplus on a budgetary basis at June 30, 1994, of $60.0 million. In
addition, it is currently estimated that the balance in the Revenue
Stabilization Account of the State Reserve fund at June 30, 1995, will be $223.6
million. Current statute requires the Governor to include as part of the budget
submitted at the 1995 Session of the General Assembly an appropriation in an
amount equivalent to the general fund surplus at June 30, 1994. The estimates of
the general fund surplus and balance in the Revenue Stabilization Account at
June 30, 1995, assume that the required appropriation will be effective July 1,
1995.
1996 Budget--On April 1, 1995, the General Assembly approved the Budget
for fiscal year 1996. The Budget includes, among other things: (i) sufficient
funds to meet all specific statutory funding requirements; (ii) sufficient funds
to meet the actuarily recommended contributions for the seven retirement
systems, determined on a basis consistent with prior years' practice; (iii)
sufficient general funds for the Annuity Bond Fund to maintain the State
property tax rate at $0.21 per $100 of assessed valuation; (iv) $2.8 billion in
aid to local governments (reflecting a $161 million increase over fiscal year
1995 that provides for substantial increases in education, health, and police
aid); (v) a $270 million general fund appropriation to the State Reserve Fund,
$200 million of which is appropriated to the Revenue Stabilization Account; and
(vi) $134.1 million in general fund deficiency appropriations for fiscal year
1995, of which $60 million is an appropriation to the Revenue Stabilization
Account of the State Reserve Fund as previously mandated by the General
Assembly. The Budget also includes $39 million in general funds for a 2%
employee cost-of-living adjustment.
The operating budget for fiscal year 1996 is to be funded with $7,394
million in general funds, $3,918 million in special and higher education funds,
and $3,299 million in federal funds.
The State's fiscal year 1996 capital program is proposed to be funded
with $390 million in general obligation bonds, $93.5 million in general funds
appropriated in the operating budget, $1,244.6 in special and federal funds (of
which $1,055.2 is appropriated to the Department of Transportation), $131.9
million in revenue bonds, and $21.0 million in reappropriated prior years'
capital appropriations. The proposed general obligation bond financed program
includes $152 million for State facilities, $83 million for the construction and
renovation of local elementary and secondary schools, and $155 million for
various other grants and loan projects.
When the 1996 Budget was enacted, it was estimated that the general
fund surplus on a budgetary basis at June 30, 1996, would be approximately $7.8
million; it is currently estimated to be $1.0 million. At its December 12, 1995,
meeting, the Board of Revenue Estimates lowered the estimate of fiscal year 1996
general fund revenues by $92 million. The Governor has proposed a plan to
address this change that principally includes: (1) additional reversions for
Medicaid and Nonpublic Special Education Placements of $22 million; (2)
reduction of current general fund appropriations of $26 million; (3) transfer
from the Revenue Stabilization Account of $18 million;
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and (4) use of unanticipated fiscal year 1995 surplus of $26 million. It is
anticipated that the balance of the Revenue Stabilization Account after the
transfer at June 30, 1996, will be $500 million.
The Adviser believes that the information summarized above describes
some of the more significant matters relating to the Maryland Intermediate
Municipal Bond Fund and Maryland Municipal Bond Fund. The sources of the
information are the official statements of issuers located in Maryland, other
publicly available documents, and oral statements from various state agencies.
The Adviser has not independently verified any of the information contained in
the official statements, other publicly available documents, or oral statements
from various state agencies.
North Carolina. The North Carolina Constitution requires that the total
expenditures of the State for the fiscal period covered by the budget not exceed
the total receipts during the fiscal period plus any surplus remaining in the
State Treasury at the beginning of the period. The State operates on a fiscal
year ending June 30th.
Economic growth in North Carolina continued in 1995, although at a
somewhat slower pace than in recent years. The total real (inflation-adjusted)
output of goods and services in North Carolina is estimated to have increased
3.6% in 1995, which is lower than in 1994 and 1993. Despite the slower growth
rate, however, the State's overall economic performance in 1995 exceeded that of
the nation. In addition, it is forecasted that North Carolina will have added
approximately 70,000 jobs during 1995. This number is smaller than in recent
years and again reflects a slowing of the pace of economic growth. The State's
inflation rate remained moderate in 1995. North Carolina is expected to continue
the pattern of slower economic growth in 1996, with the real output of goods and
services in North Carolina increasing between 2.5% and 3% in 1996.
The fund balance of the State's General Fund grew by $124 million in
1995. The growth in tax and other revenues exceeded expectations in 1995, which
directly contributed to the strong condition of the General Fund at fiscal year
end. Nevertheless, upward actuarial revisions in net projected Medicaid
liabilities of approximately $31 million, and cuts of approximately $73 million
to individual income tax revenues, were reflected in the balance sheet of June
30, 1995. At that date, the fund balance of the General Fund was $1,024.6
million, as compared to a $900.6 million balance at June 30, 1994. The budgets
for the 1995-96 and 1996-97 fiscal years project an ending balance for the
General Fund of $630.3 million and $824.4 million, respectively.
The following are cases pending in which the State faces the risk of
either a loss of revenue or an unanticipated expenditure. In the Opinion of the
Department of State Treasurer, however, any such loss of revenue or expenditure
would not materially adversely affect the State's ability to meet its financial
obligations.
Leandro, et al. v. State of North Carolina and State Board of
Education. On May 25, 1994, students and boards of education in five counties
filed suit requesting a declaration that the public education system of North
Carolina violates the State constitution by failing to provide adequate or
substantially equal education opportunities, and by denying due process of law.
The
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defendants' motion to dismiss was denied and the ruling was appealed. The North
Carolina Court of Appeals heard oral argument in late January 1996, and a ruling
is expected later this year.
Francisco case. On August 10, 1994, a class action lawsuit was filed
against the Superintendent of Public Instruction and the State Board of
Education on behalf of a class of parents and their children who are
characterized as limited English proficient. The complaint alleges that the
State has failed to provide funding for the education of these students and has
failed to supervise local school systems in administering programs for them. The
complaint asks the Court to order the defendants to fund a comprehensive program
to ensure equal educational opportunities for limited English proficient
children. Discovery is underway but no trial date has been set.
Swanson case. In Davis v. Michigan (1989), the U.S. Supreme Court ruled
that a Michigan income tax statute which taxed federal retirement benefits while
exempting those paid by state and local governments violated the constitutional
doctrine of intergovernmental tax immunity. At the time of the Davis decision,
North Carolina law contained similar exemptions in favor of state and local
retirees. Those exemptions were repealed prospectively beginning with the 1989
tax year. Following Davis, federal retirees filed a class action suit in federal
court in 1989 seeking damages equal to the North Carolina income tax paid on
federal retirement income by the class members. A companion suit was filed in
state court in 1990. The North Carolina Department of Revenue's estimate of
refunds and interest liability is $280.89 million as of June 30, 1994. In 1991
the North Carolina Supreme Court ruled in favor of the State in the state court
action. In 1993 the U.S. Supreme Court vacated that decision and remanded the
case to the North Carolina Supreme Court. The North Carolina Supreme Court then
ruled in favor of the State on the grounds that the federal retirees had failed
to comply with state procedures for challenging unconstitutional taxes.
Plaintiffs petitioned the U.S. Supreme Court for review of that decision, but
the U.S. Supreme Court denied their petition. The U.S. District Court has ruled
in favor of the defendants in the federal case, and a petition for
reconsideration was denied. Plaintiffs appealed to the U.S. Court of Appeals,
which upheld the lower federal court's ruling.
An additional lawsuit was filed in mid-1995 in state court by federal
pensioners seeking to recover state income taxes paid on federal retirement
benefits. This case grew out of the claims made by the federal pensioners in the
original Swanson federal case. In the new lawsuit, the plaintiffs allege that,
when the state granted an increase in retirement benefits to state retirees in
the same legislation that equalized tax treatment between state and federal
retirees, the increased benefits to state retirees constituted an indirect
violation of Davis. The suit seeks a refund of taxes paid by federal retirees on
federal retirement benefits received in the years 1989-93 and refunds or
monetary relief sufficient to equalize the alleged on-going discriminatory
treatment for those years. This case has been stayed pending the outcome in
Bailey (see below).
Bailey case. State and local government retirees filed a class action
suit in 1990 as a result of the repeal of the income tax exemptions for state
and local government retirement benefits. The original suit was dismissed after
the North Carolina Supreme Court ruled in 1991 that the plaintiffs had failed to
comply with state law requirements for challenging unconstitutional taxes and
the U.S. Supreme Court denied review. In the 1992 many of the same plaintiffs
filed a new lawsuit alleging essentially the same claims. The case went to trial
in March of 1995.
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On May 31, 1995, the court issued an order ruling in favor of the
plaintiffs. The court found that the repeal of the tax exemption on state and
local government retirement benefits was null, void and unenforceable and that
retirement benefits vested before 1989 are exempt from taxation. The North
Carolina Attorney General has appealed the order, and it estimates that the
amount in controversy is approximately $40-45 million annually for the tax years
1989-91. In addition, it is anticipated that the decision reached in this case
will govern the resolution of tax refund for claims made by retired state and
local government employees for taxes paid on retirement benefit income for tax
years after 1991. Furthermore, if the order of the trial court is upheld, its
provisions would apply prospectively to prevent future taxation of state and
local government retirement funds that were vested before August 1989.
Faulkenbury v. Teachers' and State Employees' Retirement System, Peele
v. Teachers' and State Employees' Retirement System, and Woodard v. Local
Governmental Employees' Retirement System. Plaintiffs are disability retirees
who brought class actions in state court challenging changes in the formula for
payment of disability retirement benefits and claiming impairment of contract
rights, breach of fiduciary duty, violation of other federal constitutional
rights and violation of state constitutional and statutory rights. The State
estimates that the cost in damages and higher prospective benefit payments to
plaintiffs and class members may amount to $50 million or more in Faulkenbury,
$50 million in Peele and $15 million or more in Woodard. Upon review in
Faulkenbury, the North Carolina Court of Appeals and the North Carolina Supreme
Court have held that the claims made in Faulkenbury, which are substantially
similar to those in Peele and Woodard, for breach of fiduciary duty and
violation of federal constitutional rights brought under the Federal Civil
Rights Act, either do not state a cause of action or are otherwise barred by the
statute of limitations. In 1994 plaintiffs took voluntary dismissals of their
claims for impairment of contract rights in violation of the U.S. Constitution
and filed new actions in federal court asserting the same claims along with
claims for violation of constitutional rights in the taxation of retirement
benefits. The remaining State court claims in all of the cases were scheduled to
be heard in May, 1995, and the trial court ruled against the defendants. The
defendants have given notice of appeal. The federal actions have been stayed
pending resolution of the State claims.
Fulton Case. The State's intangible personal property tax levied on
certain shares of stock has been challenged by the plaintiff on the grounds that
it violates the U.S. Constitution's commerce clause by discriminating against
stock issued by corporations that do all or part of their business outside the
State. The plaintiff in the action is a North Carolina corporation that paid the
tax on stock it owned in companies that did all or part of their business
outside the State. Plaintiff seeks to invalidate the tax in its entirety and to
recover tax paid on the value of its shares in such corporations. The North
Carolina Court of Appeals invalidated the taxable percentage deduction and
excised it from the statute beginning with the 1994 tax year; however, the North
Carolina Supreme Court reversed the Court of Appeals and reinstated the trial
court's ruling, which had upheld the tax as constitutional, including the
taxable percentage deduction. The plaintiffs' petition for certiorari to the
U.S. Supreme Court was granted, and on February 21, 1996, the U.S. Supreme Court
declared the State's intangibles tax to be unconstitutional under the commerce
clause and remanded the case to the North Carolina Supreme Court for its
determination of the appropriate remedy for taxes improperly collected in years
prior to the repeal of the tax.
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The Adviser believes that the information summarized above describes
some of the more significant matters relating to the North Carolina Intermediate
Municipal Bond Fund and North Carolina Municipal Bond Fund. The sources of the
information are the official statements of the Department of State Treasurer of
North Carolina, other publicly available documents and oral statements from
various State agencies. The Adviser has not independently verified any of the
information contained in the official statements, other publicly available
documents, or oral statements from various State agencies.
South Carolina. The South Carolina Constitution mandates a balanced
budget. If a deficit occurs, the General Assembly must account for it in the
succeeding fiscal year. In addition, if a deficit appears likely, the State
Budget and Control Board may reduce appropriations during the current fiscal
year as necessary to prevent the deficit. The State Constitution limits annual
increases in State appropriations to the average growth rate of the economy of
the State and annual increases in the number of State employees to the average
growth of the population of the State; provided, however, that these two
limitations are subject to suspension for any one fiscal year by a special vote
in each House of the General Assembly.
The State Constitution requires a General Reserve fund that equals
three percent of General Fund Revenue for the latest completed fiscal year. When
deficits have occurred, the State has funded them out of the General Reserve
Fund. The State Constitution also requires a Capital Reserve Fund equal to two
percent of General Fund Reserve for the latest completed fiscal year. The State
Constitution requires that the General Assembly provide that, if revenue
forecasts before March 1 project that revenues for the current fiscal year will
be less than expenditures authorized by appropriation for the current fiscal
year, the current fiscal year's appropriation to the Capital Reserve Fund shall
first be reduced to the extent necessary before any reduction is made in
operating appropriations. If it is determined that a fiscal year had ended with
an operating deficit, the State Constitution requires that monies appropriated
from the Capital Reserve Fund must be reduced to the extent necessary and
applied to the year end operating deficit before withdrawing monies from the
General Reserve Fund for such purpose.
After March 1, monies from the Capital Reserve Fund may be appropriated
by a special vote of the General Assembly to finance previously authorized
capital improvement bond projects, to retire principal or interest on bonds
previously issued, and to pay for capital improvements or other nonrecurring
purposes. Monies in the Capital Reserve Fund not appropriated or any
appropriation for a particular project or item that has been reduced due to
application of the monies to a year-end deficit must go back to the General
Fund.
The State operates on a fiscal year beginning July 1 and ending June
30. For the fiscal year ended June 30, 1995, the State had a budgetary surplus
of $393,000,000, and the Capital Reserve Fund and General Reserve Fund were
fully funded at the combined 5% level. The South Carolina General Assembly
recently passed the Fiscal Year 1995-96 Appropriations Act that enacted a
balanced budget where most of the new revenue was allocated to property tax
relief and education.
A class action lawsuit, Bass v. State of South Carolina, questioning
the State's tax treatment of federal retirement benefits for the tax years 1985,
1986, 1987 and 1988, has been
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settled by agreement of the parties and approved by the Circuit Court of the
State. The time for appeal has expired. In addition, the General Assembly
authorized the payment of up to $85,000,000 to the members of the class and
approximately $77,000,000 has been paid. The General Assembly, during the 1994
Session, enacted legislation which extended the time for filing claims until
August 8, 1994. The State, in October 1995, paid approximately $11,700,000, and
in October 1996, will pay approximately $11,500,000, for claims filed during the
extended period, which will conclude the State's obligation.
The Adviser believes that the information summarized above described
some of the more significant matters relating to the South Carolina Intermediate
Municipal Bond Fund and South Carolina Municipal Bond Fund. The sources of the
information are the official statements of issuers located in South Carolina,
other publicly available documents, or oral statements from various State
agencies. The Adviser has not independently verified any of the information
contained in the official statements, other publicly available documents, or
oral statements from various State agencies.
Tennessee. The Constitution of the State of Tennessee forbids the
expenditure of the proceeds of any debt obligation for a purpose other than the
purpose for which it was authorized by statute. The Constitution also forbids
the authorization of any debt obligation, except as shall be repaid within the
fiscal year of issuance, for current operation of any state service or program.
Under Tennessee law, the term of the State's bonds cannot exceed the life of the
projects being financed. Furthermore, the amount of debt obligations of the
State of Tennessee cannot exceed the amount authorized by the Tennessee General
Assembly. The procedure for funding State of Tennessee debt is provided by
Chapter 9 of Title 9, Tennessee Code Annotated. The Funding Board of the State
of Tennessee is the entity authorized to issue general obligation indebtedness
of the State of Tennessee. Pursuant to Section 9-9-106, Tennessee Code
Annotated, the Funding Board of the State of Tennessee has a lien on the taxes,
fees and revenues from certain designated revenue sources for the full amount
required to service the State's general obligation indebtedness. Certain other
agencies and authorities in Tennessee issue obligations, payable solely from
specific non-tax enterprise fund revenues and which are not debts or liabilities
of the State of Tennessee nor is the full faith and credit pledged to the
payment thereof.
Under current state statutes, the State of Tennessee's general
obligation bonded debt issuances are subject to an annual legal debt service
limitation based on a pledged portion of certain current year revenues. As of
June 30, 1995, the State of Tennessee's annual legal debt service limit of $374
million was well above the debt service required of $112 million, with a legal
debt service margin of $262 million. Debt per capita equaled $128, and the ratio
of net general long-term bonded debt to assessed property valuation was 1.25
percent.
The Constitution of the State of Tennessee requires a balanced budget.
As required by law, the legislature enacted a balanced budget for fiscal year
1994-95. Beginning January 1, 1994 the State of Tennessee received a waiver from
the federal government to replace Medicaid with the new program, TennCare.
TennCare was implemented to help control the sky-rocketing cost of health care
and to provide insurance coverage not only to previous Medicaid eligible
individuals but also to uninsured Tennesseans.
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Despite the budgetary concerns caused by the costs associated with
implementing TennCare, the economic outlook for Tennessee remains favorable. The
State's economic diversity has improved substantially over the last twelve
years. Investments announced in new and expanding business exceeded one billion
dollars in each of those years and exceeded two billion in the last two years.
The $2.5 billion in announced capital investments in 1994 was the third largest
year and exceeded only by the $2.78 billion in 1985 when Saturn Corporation
chose Tennessee for its plant site and 1989 when $3.2 billion in capital
investments were announced. This growth created 26,317 new jobs in Tennessee for
the year ended June 1995. As of June 1995, the State's unemployment rate was
4.8%, well below the national average of 6.1%. The decision by Columbia/HCA
Corporation to relocate its headquarters in Tennessee is also expected to have a
significant positive impact on future growth in Tennessee. Based on current
projections, the State's overall growth is expected to exceed the national
average into the next century according to the Comprehensive Annual Financial
Report for the State of Tennessee for the year ended June 1995.
Texas. The State has long been identified with the oil and gas
industry, but the Texas economy has diversified. Oil and gas related industries
accounted for 27% of the State's total output of goods and services in 1981, but
currently account for only 12% of the State's economy. Service-producing sectors
(which include transportation and public utilities; finance and insurance and
real estate; trade; services; and government) are the major sources of job
growth in Texas. Texas' location and transportation and accessibility have made
it a distribution center for the southwestern United States as well as an
international center for finance and distribution. The high-technology sector,
growth of exports and manufacturing job growth are expected to be significant to
Texas' future growth. The State Comptroller of Public Accounts has predicted
that the overall Texas economy will slightly out pace national economic growth
in the long term.
The State generally can be divided into six geo-economic regions. The
east region is a largely non-metropolitan region, in which the economy is
dependent on agricultural activities and the production and processing of coal,
petroleum and wood. The Dallas-Ft. Worth metroplex region is almost totally
metropolitan, with diversified manufacturing, defense, financial and commercial
sectors. The panhandle, Permian basin and Concho Valley regions are the largest
and most sparsely populated areas of the State, with an economy based on
petroleum production and agriculture. The border region stretching from El Paso
to Brownsville is characterized by its dependence on trade with Mexico, tourism
and agriculture. The gulf coast region is the most populous region in the State
and has an economy centered on energy services, petro-chemical industries and
commercial activities resulting from agriculture and seaport trade. The economy
of the central corridor is based upon the public and private service sector,
recreation/tourism and manufacturing. Because the economic base is different
from region to region, economic developments, such as the strength of the U.S.
economy, shifting export markets or changes in oil prices or defense spending,
can be expected to affect the economy of each region differently.
Employment in the State increased steadily through the 70's and early
80's. However, in 1986, the Texas economy was battered by a recession induced by
declining oil prices and a collapse in its real estate industry. The
unemployment rate in Texas peaked at 8.9% in 1986. By the summer of 1988, the
State had replaced jobs lost during this recession, although many were in
lower-paying occupations. Although the Texas economy was slowed by the nation's
1990-91
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recession, it did not fall into recession itself. The unemployment rate in Texas
fell more than two percentage points from 1992 to 1995. Since reaching nearly 8
percent in 1992, the unemployment rate improved to a rate below 6 percent in
1995. During the twelve months ending in September, 1995, the Texas Employment
Commission reported total nonfarm employment growth of 3%.
Most new jobs created in the past year have been in the service sector
with most of the growth in the health, business and miscellaneous services
sectors. Employment during the past year also increased in the wholesale and
retail trade, government, transportation, communications, public utilities,
manufacturing and construction industries. Oil and gas mining experienced a job
decline during the past year. The State's per capita personal income compared to
the national average peaked in 1981 at approximately 102% of the national
average but steadily fell to a low of 88% of the national average in 1988-87 and
has since increased to approximately 91% as of 1995.
The State's general revenue fund provides an indication of the State's
financial condition. Effective as of the beginning of fiscal 1994, numerous
state funds were merged into the general revenue fund providing for a one-time
gain of approximately $1.2 billion for the fund. In the fiscal year 1995, the
general revenue fund accounted for most of the state's total revenue. Due to the
state's expansion in Medicaid spending and other Health and Human Services
programs requiring federal matching revenues, federal receipts were the state's
number one source of income in fiscal 1995. Sales tax, which had been the main
source of revenue for the previous 12 years prior to fiscal 1993, dropped to
second. Licenses, fees, fines and penalties are now the third largest source of
revenue to the state, with motor fuels taxes and motor vehicle sales/rental
taxes following as fourth largest and fifth largest, respectively. The remainder
of the state's revenues are derived primarily from interest and investment
income, lottery proceeds, cigarette and tobacco, franchise, oil and gas
severance and other taxes. The state has no personal or corporate income tax,
although the state does impose a corporate franchise tax based on the amount of
a corporation's capital and "earned surplus," which includes corporate net
income and officers' and directors' compensation. For each of the fiscal years
ended 1991, 1992, 1993, 1994 and 1995 the general revenue fund contained a cash
surplus of approximately $1.005 billion, $609 million, $1.623 billion, $2.239
billion, and $2.110 billion, respectively.
Virginia. The Constitution of Virginia, in Section 9 of Article X
provides for the issuance of debt by or on behalf of the Commonwealth. Sections
9(a), (b) and (c) provide for the issuance of debt to which the Commonwealth's
full faith and credit is pledged and Section 9(d) provides for the issuance of
debt not secured by the full faith and credit of the Commonwealth, but which may
be supported by and paid from Commonwealth tax collections. The Commonwealth may
also enter into leases and contracts that are classified on its financial
statements as long-term indebtedness. Debt may also be issued by certain
authorities and institutions of the Commonwealth.
Section 9(a) of Article X authorizes general obligation debt to meet
certain types of emergencies, to meet casual deficits in the revenue or in
anticipation of the collection of revenues of the Commonwealth (subject to
limits on the amount and duration of the debt), and to redeem a previous debt
obligation of the Commonwealth. Total indebtedness issued to meet casual
deficits
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may not exceed thirty percent of an amount equal to 1.15 times the annual tax
revenues "derived from taxes on income and retail sales, as certified by the
Auditor of Public Accounts, for the preceding fiscal year."
Section 9(b) of Article X authorizes general obligation debt for
capital projects. The outstanding amount of Section 9(b) debt is limited in the
aggregate to an amount equal to 1.15 times the average annual tax revenues
"derived from taxes on income and retail sales, as certified by the Auditor of
Public Accounts," for the three immediately preceding fiscal years less the
total amounts of bonds outstanding. The amount of Section 9(b) debt that the
General Assembly may authorize for the current fiscal year is further limited to
25% of the aggregate Section 9(b) debt limit less Section 9(b) debt authorized
in the current and prior three fiscal years. Also, the debt must be authorized
by a vote of a majority of the members of each house of the General Assembly and
approved in a state-wide election.
Section 9(c) of Article X authorizes general obligation debt for
revenue-producing capital projects. The outstanding amount of Section 9(c) debt
is limited in the aggregate to an amount equal to 1.15 times the average annual
tax revenues "derived from taxes on income and retail sales, as certified by the
Auditor of Public Accounts," for the three immediately preceding fiscal years.
This debt must be approved by a vote of two-thirds of the members of each house
of the General Assembly and approved by the Governor. The Governor must certify
before the enactment of the bond legislation and again before the issuance of
the bonds that the net revenues pledged are expected to be sufficient to pay
principal and interest on the bonds issued to finance the projects.
The phase "taxes on income and retail sales" is not defined in the
Constitution or by statute. The record made in the process of adopting the
Constitution, however, suggests an intention to include only income taxes
payable by individuals, fiduciaries and corporations and the state sales and use
tax.
Section 9(d) of Article X provides that the restrictions of Section 9
are not applicable to any obligation increased by the Commonwealth or any of its
institutions, agencies or authorities if the full faith and credit of the
Commonwealth is not pledged or committed to the payment of such obligation.
Various types of Section 9(d) revenue bonds are issued for which the
Commonwealth's full faith and credit is not pledged. Certain of these bonds,
however, are paid in whole or in part from revenues received as appropriations
by the General Assembly from general tax revenues, while others are paid solely
from the revenues derived from enterprises related to the operation of financed
capital projects.
The Commonwealth is involved in numerous agreements to lease buildings
and equipment. These lease agreements are for various terms, and each lease
contains a nonappropriation clause indicting that continuation of the lease is
subject to funding by the General Assembly. The principal balance of all capital
leases outstanding was $25.8 million as of June 30, 1995.
The Commonwealth also finances the acquisition of certain personal
property and equipment through installment purchase agreements. The length of
the agreements and the interest rates charged vary. In most cases, the
agreements are collateralized by the personal
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property and equipment acquired. Installment purchase agreements contain
nonappropriation clauses indicating that continuation of the installment
purchase is subject to funding by the General Assembly. The principal balance of
installment purchase obligations outstanding was $42.2 million as of June 30,
1995.
Virginia operates on a two-year budget.
On December 20, 1993, Governor Wilder presented the Budget Bill for the
1994-96 Biennium. A new governor, George Allen, was elected on November 7, 1993
and took office on January 15, 1994. On January 21, 1994, Governor Allen
submitted amendments to the budget with a financial impact totaling $89 million.
Major amendments proposed by Governor Allen included provisions for a $30
million reserve fund for the anticipated settlement of the Harper v. Virginia
Department of Taxation court case involving a dispute over taxation of federal
retirees.
The General Assembly amended the proposed budget and passed the
resulting Budget Bill on March 12, 1994. The adopted Budget Bill did not include
the Governor's proposed reserve fund to settle the Harper case.
On April 11, 1994, Governor Allen submitted 38 amendments to the
adopted Budget Bill for consideration by the General Assembly. Among other
things, the amendments proposed to set aside a $40 million reserve fund for the
Harper case. At the Veto Session held on April 20, 1994, the General Assembly
approved most of the amendments submitted by the Governor, but did not agree to
the reserve fund for the Harper settlement. However, at a Special Session
commended on July 6, 1994, the General Assembly took action to enact a
settlement package and set aside a $60 million reserve fund to settle the Harper
case.
The Budget Bill became effective as Chapter 966 of the 1994 Acts of
Assembly (the 1994-96 Appropriations Act) on July 1, 1994.
At a Special Session concluded September 30, 1994, the General Assembly
passed, and sent to the Governor, legislation that would in effect lengthen the
period certain convicted felons would be incarcerated and would incidentally
increase the capital and operating costs to the Commonwealth of its prison
system. At its 1995 Regular Session, the General Assembly authorized $118.7
million in new prison-related capital projects to be funded with bonds issued by
the Virginia Public Building Authority.
On December 19, 1994, the Governor presented to the General Assembly
the 1995 Budget Bill, a bill proposing amendments to the current Appropriation
Act, which appropriated funds for the 1994-96 biennium. The 1995 General
Assembly Session ended on February 25, 1995. The 1995 Budget Bill, as amended by
the General Assembly, was submitted to the Governor for approval. The Governor
then returned the 1995 Budget Bill with his amendments to the General Assembly
for consideration at its two-day reconvened session held on April 7-8, 1995. The
General Assembly made final revisions to the Budget Bill and re-submitted it to
the Governor for his final approval. The Governor signed the 1995 Budget Bill,
as amended by the General Assembly, on May 5, 1995.
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The 1996-98 Budget Bill focuses on three key areas: education, public
safety, and economic development. The Budget Bill provides about $1,411.9
million in spending increases above the level necessary to continue FY1996
workloads and costs. Of these increases, $108.9 million would result from the
deposits to the Revenue Stabilization Fund. The remainder would provide the
state share of Standards of Quality for public schools, proposed increases in
higher education, increased spending for adult and juvenile corrections,
proposed expansion of economic development activities in several areas, and
mandated increases in several entitlement programs in health and human
resources, primarily for Medicaid.
The proposed budget includes more than $200 million to cover
installment payments on the settlement and the recent ruling by the Virginia
Supreme Court in favor of retirees who did not settle in the Harper v. Virginia
Department of Taxation.
The Virginia Intermediate Municipal Bond Fund and Virginia Municipal
Bond Fund also invest in debt obligations issued by local governments. Local
government in the Commonwealth is comprised of approximately 95 counties, 41
incorporated cities, and 190 incorporated towns. The Commonwealth is unique in
that cities and counties are independent and their land areas do not overlap.
Cities and counties each levy and collect their own taxes and provide their own
services. Towns, which are units of local government and which continue to be
part of the counties in which they are located, levy and collect taxes for town
purposes but their residents are also subject to county taxes. Generally, the
largest expenditure by local governments in the Commonwealth is for public
education. Each county and city in the Commonwealth, with few exceptions,
constitutes a separate school district. Counties, cities and towns typically
also provide such services such as water and sewer services, police and fire
protection, and recreational facilities.
In Davis v. Michigan (decided March 28, 1989), the United States
Supreme Court ruled unconstitutional states' exempting from state income tax the
retirement benefits paid by the state or local governments without exempting
retirement benefits paid by the federal government. At that time, Virginia
exempted state and local retirement benefits but not federal retirement
benefits. At a Special Session held in April 1989, the General Assembly repealed
the exemption of state and local retirement benefits. Following Davis, at least
five suits, some with multiple plaintiffs, for refunds of Virginia income taxes,
were filed by federal retirees. These suits were consolidated under the name of
Harper v. Virginia Department of Taxation.
In a Special Session, the Virginia General Assembly on July 9, 1994
passed emergency legislation to provide payments to federal retirees in
settlement of the retirees' claims as a result of Davis. The settlement payments
are to be made over a five-year period, commencing March 31, 1995. The total
amount of authorized appropriations for the settlement is $340 million (payment
to participating retirees in installments of $60 million on March 31, 1995, and
$70 million on each succeeding March 31 through March 31, 1999, subject to
appropriation by the General Assembly).
On September 15, 1995 the Supreme Court of Virginia rendered its
decision in Harper. The Court reversed the judgment of the trial court and
entered final judgment in favor of the taxpayers, directing that the amounts
unlawfully collected be refunded with statutory interest.
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The Commonwealth will not seek an appeal or rehearing of this decision. The
Commonwealth issued refund checks on November 9, 1995, and interest stopped
accruing as of November 3, 1995. The cost of refunding all Virginia income taxes
paid on federal government pensions for taxable years 1985, 1986, 1987 and 1988
to federal government pensioners who opted out of the settlement was
approximately $78.4 million, including interest earnings. The total cost of
refunding all Virginia income taxes paid on federal government pensions was
$418.4 million, $340 million for the settlement and $78.4 million as a result of
the judgment. Of this total amount, $60 million was paid in March 1995 and $78.4
million was paid in November 1995 leaving a balance to be paid of $280 million.
NationsBank believes that the information summarized above describes
some of the more significant matters relating to the Virginia Intermediate
Municipal Bond Fund and Virginia Municipal Bond Fund. The sources of the
information are the official statements of issuers located in the Commonwealth,
other publicly available documents, and oral statements from various state
agencies. NationsBank has not independently verified any of the information
contained in the official statements, other publicly available documents, or
oral statements from various state agencies.
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.
REAL ESTATE INVESTMENT TRUSTS
A real estate investment trust ("REIT") is a managed portfolio of real
estate investments which may include office buildings, apartment complexes,
hotels and shopping malls. An Equity REIT holds equity positions in real estate,
and it seeks to provide its shareholders with income from the leasing of its
properties, and with capital gains from any sales of properties. A Mortgage REIT
specializes in lending money to developers of properties, and passes any
interest income it may earn to its shareholders.
REITs may be affected by changes in the value of the underlying
property owned or financed by the REIT, while Mortgage REITs also may be
affected by the quality of credit extended. Both Equity and Mortgage REITs are
dependent upon management skill and may not be diversified. REITs also may be
subject to heavy cash flow dependency, defaults by borrowers, self-liquidation,
and the possibility of failing to qualify for tax-free pass-through of income
under the Internal Revenue Code of 1986, as amended.
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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 les, at which point the GIC may
be considered to be an illiquid investment.
A Money Market Fund will acquire GICs so that they, together with other
instruments in such Fund's portfolio which are not readily marketable, will not
exceed applicable limitations on such Fund's investments in illiquid securities.
A Money Market Fund will restrict its investments in GICs 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.
VARIABLE- AND FLOATING-RATE INSTRUMENTS
The Funds may purchase variable-rate and floating rate obligations as
described in the Prospectuses. 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,
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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.
STAND-BY COMMITMENTS
The 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 Tax-Free 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 Tax-Free Bond Fund
paid on their acquisition), less any amortized market premium or plus any
amortized market or original issue discount during the period a Tax-Free 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 Tax-Free 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. The Tax-Free Bond Funds will not acquire a stand-by commitment unless
immediately after the acquisition not more than 5% of the Funds' total assets
will be subject to a demand feature, or in stand-by commitments, with the same
institution.
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
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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.
VARIABLE- AND FLOATING-RATE GOVERNMENT SECURITIES
Government securities that have variable- or floating interest rates or
demand or put features may be deemed to have remaining maturities shorter than
their nominal maturities for purposes of determining a Fund's average weighted
maturity. The remaining maturities of such obligations will be determined as
follows: (i) a government security with a variable- or floating rate of interest
will be deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate; (ii) a government security with a demand or
put feature that entitles the holder to receive the principal amount of the
underlying security at the time of or sometime after the holder gives notice of
demand or exercise of the put will be deemed to have a maturity equal to the
period remaining until the principal amount can be recovered through demand or
exercise of the put; and (iii) a government security with both a variable- or
floating rate of interest as described in clause (i) and a demand or put feature
as described in clause (ii) will be deemed to have a maturity equal to the
shorter of the period remaining until the next readjustment of the interest rate
or the period remaining until the principal amount can be recovered through
demand.
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.
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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 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
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
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downturn also could adversely affect the ability of the issuers of such
securities to repay principal and pay interest thereon.
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.
Dollar roll transactions consist of the sale by a fund of
mortgage-backed or other asset-backed securities, together with a commitment to
purchase similar, but not identical, securities at a future date, at the same
price. In addition, a Fund is paid a fee as consideration for entering into the
commitment to purchase. 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.
FOREIGN CURRENCY TRANSACTIONS
Certain of the Funds may enter into foreign currency exchange
transactions to convert foreign currencies to and from the United States Dollar.
A Fund either enters into these transactions on a spot (i.e., cash) basis at the
spot rate prevailing in the foreign currency exchange market, or uses forward
contracts to purchase or sell foreign currencies.
A forward foreign currency exchange contract is an obligation by a Fund
to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract. Forward foreign currency exchange
contracts establish an exchange rate at a future
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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 maintains
with its custodian a segregated account of 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.
Certain of the Funds also may purchase and write options on such
futures contracts. These investments will be used only to hedge against
anticipated future changes in interest rates which otherwise might either
adversely affect the value of the portfolio securities of a Fund or adversely
affect the prices of securities which a Fund intends to purchase at a later
date. Should interest rates move in an unexpected manner, a Fund may not achieve
the anticipated benefits of futures contracts or options on futures contracts or
may realize a loss.
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.
INTEREST RATE TRANSACTIONS
Among the strategic transactions into which the Non-Money Market Funds
may enter are interest rate swaps and the purchase or sale of related caps and
floors. Each Fund expects 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 Funds anticipate
purchasing at a later date. Each 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 the 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. Inasmuch as these swaps, caps, and
floors are entered into for good faith hedging purposes, the Adviser and the
Funds 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. The Funds will not enter into any swap, cap, or floor transaction
unless, at the time of entering into such transaction, the unsecured long-term
debt of the counterparty, combined with any credit enhancements, is rated at
least "A" by S&P or Moody's or has an equivalent rating from an 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 a Fund's net obligation, if any.
ILLIQUID SECURITIES
Certain of the Non-Money Market Funds may invest up to 15% of their net
assets, and certain of the Money Market Funds may invest up to 10% of their net
assets, in securities that are considered illiquid because of the absence of a
readily available market or due to legal or contractual restrictions. Certain
restricted securities that are not registered for sale to the general public but
that can be resold to institutional investors may not be considered illiquid,
provided that a dealer or institutional trading market exists.
OTHER SECURITIES
For additional information regarding options and futures, see "Schedule
B." For additional information regarding mortgage-backed securities, see
"Schedule C."
ADDITIONAL INVESTMENT LIMITATIONS
In addition to the investment limitations disclosed in the related
Prospectuses, the Funds are subject to the investment limitations enumerated in
this subsection which may be changed with respect to one of these Funds only by
a vote of the holders of a majority of such Fund's outstanding shares (as
defined in this SAI).
None of these Funds may:
1. Borrow money or issue senior securities as defined in the 1940 Act
except that (a) a Fund may borrow money from banks for temporary
purposes in amounts up to one-
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third of the value of such Fund's total assets at the time of
borrowing, provided that borrowings in excess of 5% of the value
of such Fund's total assets will be repaid prior to the purchase
of portfolio securities by such Fund, (b) a Fund may enter into
commitments to purchase securities in accordance with the Fund's
investment program, including delayed delivery and when-issued
securities, which commitments may be considered the issuance of
senior securities, and (c) a Fund may issue multiple classes of
shares in accordance with SEC regulations or exemptions under the
1940 Act. The purchase or sale of futures contracts and related
options shall not be considered to involve the borrowing of money
or issuance of senior securities.
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 Fund of initial or maintenance margin in
connection with futures contracts and related options and options
on securities is not considered to be the purchase of a security
on margin.)
3. Underwrite securities issued by any other person, except to the
extent that the purchase of securities and the later disposition
of such securities in accordance with the Fund'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
(the Fund 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 Fund 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.
In addition, certain non-fundamental investment restrictions are
applicable to various investment portfolios, including the following:
1. The Trust will not purchase or retain the securities of any issuer
if the officers, directors or Trustees of the Trust, 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 Fund of the Trust will purchase securities of unseasoned
issuers, including their predecessors, that have been in operation
for less than three years, if by reason thereof
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the value of such Fund's investment in such classes of securities
would exceed 5% of such Fund's total assets. For purposes of the
above-described investment limitation, issuers include
predecessors, sponsors, controlling persons, general partners,
guarantors and originators of underlying assets which have less
than three years of continuous operations of relevant business
experience.
3. No Fund 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 Fund's transactions in futures contracts and related options,
and (c) a Fund may obtain short-term credit as may be necessary
for the clearance of purchases and sales of portfolio securities.
4. No Fund will invest in warrants, valued at the lower of cost or
market, in excess of 5% of the value of such Fund's assets, and no
more than 2% of the value of the Fund's net assets may be invested
in warrants that are not listed on the New York or American Stock
Exchange (for purposes of this undertaking, warrants acquired by a
Fund in units or attached to securities will be deemed to have no
value).
5. The Government Money Market Fund may not purchase securities of
any one issuer (other than obligations issued or guaranteed by the
U.S. government, its agencies, authorities or instrumentalities
and repurchase agreements fully collateralized by such
obligations) if, immediately after such purchase, more than 5% of
the value of the Fund's assets would be invested in the securities
of such issuer. Notwithstanding the foregoing, up to 25% of the
Fund's total assets may be invested for a period of three business
days in the securities of a single issuer without regard to such
5% limitation.
6. No Fund of the Trust will purchase securities of companies for the
purpose of exercising control.
7. No Money Market Fund of the Trust will invest more than 10% 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 Trustees, or
its delegate, determines to be liquid, based upon the trading
markets for the specific security.
8. No Non-Money Market Fund of the Trust 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 Trustees,
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or its delegate, determines to be liquid, based upon the trading
markets for the specific security.
9. No Fund of the Trust 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 Fund'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.
10. No Fund of the Trust will invest in securities of other investment
companies, except as they may be acquired as part of a merger,
consolidation or acquisition of assets and except to the extent
otherwise permitted by the 1940 Act.
11. No Fund of the Trust will purchase oil, gas or mineral leases or
other interests (a Fund may, however, purchase and sell the
securities of companies engaged in exploration, development,
production, refining, transporting and marketing of oil, gas or
minerals).
In order to permit the sale of shares of the Trust in certain states,
the Trust may make commitments more restrictive than the investment policies and
limitations described above and in the Prospectuses. Should the Trust determine
that any such commitment is no longer in its best interest, it will revoke the
commitment by terminating sales of its shares to investors residing in the state
involved.
NET ASSET VALUE
MONEY MARKET FUNDS
The Money Market Funds use the amortized cost method of valuation to
value shares in such Funds. Pursuant to this method, a security is valued at its
cost initially and thereafter a constant amortization to maturity of any
discount or premium is assumed, regardless of the impact of fluctuating interest
rates on the market value of the security. Where it is not appropriate to value
a security by the amortized cost method, the security will be valued either by
market quotations or by fair value as determined by the Board of Trustees. This
method may result in periods during which value, as determined by amortized
cost, is higher or lower than the price the Trust would receive if it sold the
security.
Each of the Money Market Funds invest only in high quality instruments
and maintain a dollar-weighted average portfolio maturity appropriate to its
objective of maintaining a stable net asset value per share, provided that a
Fund will neither purchase any security deemed to have a remaining maturity of
more than 397 days within the meaning of the 1940 Act nor maintain a
dollar-weighted average portfolio maturity which exceeds 90 days. The Trust's
Board of Trustees has established procedures reasonably designed, taking into
account current market conditions and each Money Market Fund's investment
objective, to stabilize the net asset value per share of each Money Market Fund
for purposes of sales and redemptions at $1.00. These procedures include review
by the Board of Trustees, at such intervals as it deems appropriate, to
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determine the extent, if any, to which the net asset value per share of each
Money Market Fund calculated by using available market quotations deviates from
$1.00 per share. In the event such deviation exceeds one-half of one percent,
the Board of Trustees will promptly consider what action, if any, should be
initiated. If the Board of Trustees believes that the extent of any deviation
from a Fund's $1.00 amortized cost price per share may result in material
dilution or other unfair results to new or existing investors, it has agreed to
take such steps as it considers appropriate to eliminate or reduce, to the
extent reasonably practicable, any such dilution or unfair results. These steps
may include selling portfolio instruments prior to maturity; shortening the
average portfolio maturity; withholding or reducing dividends; redeeming shares
in kind; reducing the number of a Fund's outstanding shares without monetary
consideration; or utilizing a net asset value per share determined by using
available market quotations.
NON-MONEY MARKET FUNDS
With respect to the Equity Funds and Balanced Fund, a security listed
or traded on an exchange is valued at its last sales price on the exchange where
the security is principally traded or, lacking any sales on a particular day,
the security is valued at the mean between the closing bid and asked prices on
that day. Each security traded in the over-the-counter market (but not including
securities reported on the NASDAQ National Market System) is valued at the mean
between the last bid and asked prices based upon quotes furnished by market
makers for such securities. Each security reported on the NASDAQ National Market
System is valued at the last sales price on the valuation date. With respect to
the Bond Funds, securities will be valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate maturity and
seasoning differential. Securities for which prices are not provided by the
pricing service are valued at the mean between the last bid and asked prices
based upon quotes furnished by market makers for such securities.
With respect to each Non-Money Market Fund, securities for which market
quotations are not readily available are valued at fair value as determined in
good faith by or under the supervision of the Trust's officers in a manner
specifically authorized by the Board of Trustees. Short-term obligations having
60 days or less to maturity are valued at amortized cost, which approximates
market value.
Generally, trading in foreign securities, as well as U.S. Government
securities, money market instruments and repurchase agreements, is substantially
completed each day at various times prior to the close of the New York Stock
Exchange (the "Exchange"). The values of such securities used in computing the
net asset value of the shares of the Funds are determined as of such times.
Foreign currency exchange rates are also generally determined prior to the close
of the Exchange. Occasionally, events affecting the value of such securities and
such exchange rates may occur between the times at which they are determined and
the close of the Exchange, which will not be reflected in the computation of net
asset value. If during such periods events occur which materially affect the
value of such securities, the securities will be valued at their fair market
value as determined in good faith by the Trustees.
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The Trust may redeem shares involuntarily to reimburse the Funds for
any loss sustained by reason of the failure of a shareholder to make full
payment for Investor Shares purchased by the shareholder or to collect any
charge relating to a transaction effected for the benefit of a shareholder which
is applicable to Investor Shares as provided in the related Prospectuses from
time to time. The Trust also may make payment for redemptions in readily
marketable securities or other property if it is appropriate to do so in light
of Nations Fund Trust's responsibilities under the 1940 Act.
Under the 1940 Act, the Funds may suspend the right of redemption or
postpone the date of payment for Investor Shares or Primary Shares during any
period when (a) trading on the Exchange is restricted by applicable rules and
regulations of the SEC; (b) the Exchange is closed for other than customary
weekend and holiday closings; (c) the SEC has by order permitted such
suspension; or (d) an emergency exists as determined by the SEC. (The Funds may
also suspend or postpone the recordation of the transfer of their shares upon
the occurrence of any of the foregoing conditions.)
EXCHANGE PRIVILEGE
By use of the exchange privilege, the holder of Investor Shares and/or
Primary B 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 B Shares being exchanged have a value which is
more or less than their adjusted cost basis.
The Funds and each of the other funds of Nations Fund 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 Trust upon such notice as may be required by
applicable regulatory agencies (presently sixty days for termination or material
revision), provided that the exchange privilege may be terminated or materially
revised without notice under certain unusual circumstances.
The current prospectuses for the Investor Shares and Primary B Shares
of each Fund describes the exchange privileges available to investors in such
Investor Shares and Primary B Shares, respectively.
Primary Shares of the Funds are offered and sold on a continuous basis
by the Distributor acting as agent. As stated in the Prospectuses for the
Primary Shares, Primary Shares are sold to bank trust departments and other
financial institutions (primarily to NationsBank and its affiliated and
correspondent banks) (collectively, "Institutions") acting on behalf of
customers maintaining a qualified trust account or relationship at the
Institution.
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DESCRIPTION OF SHARES
Nations Fund Trust is a Massachusetts business trust. The Trust's
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of units of beneficial interest ("shares") and to classify or reclassify
any unissued shares of the Trust into one or more additional classes or series
by setting or changing in any one or more respects their respective preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption. Pursuant to
such authority, the Board of Trustees has authorized the issuance of thirty-two
series of shares, of which thirty-one series are described in this Statement of
Additional Information (each a "Fund"). Each Money Market Fund is divided into
six classes of shares: Investor A Shares, Investor B Shares, Investor C Shares,
Investor D Shares, Primary A Shares and Primary B Shares. Each Non-Money Market
Fund generally is divided into five classes of shares: Investor A Shares,
Investor C (formerly Investor B) Shares, Investor N (formerly Investor C)
Shares, Primary A Shares and Primary B Shares. However, the Equity Index Fund
only issue Primary A Shares, Primary B Shares and Investor A Shares.
Shares have no preemptive rights and only such conversion or exchange
rights as the Board of Trustees may grant in its discretion. When issued for
payment as described in the Prospectuses, the Trust's shares will be fully paid
and non-assessable. In the event of a liquidation or dissolution of the Trust or
an individual Fund, shareholders of a Fund are entitled to receive the assets
available for distribution belonging to the particular Fund, and a proportionate
distribution, based upon the relative asset values of the Trust's respective
investment portfolios, of any general assets of the Trust not belonging to any
particular investment portfolio which are available for distribution.
Shareholders of a Fund are entitled to participate, in proportion to the net
asset value of the class or series of shares held, in the net distributable
assets of a particular Fund involved in liquidation, based on the number of
shares of the Fund that are held by such shareholders.
As stated in the Prospectuses, shareholders of each of the Funds will
vote in the aggregate and not by class or series, except as otherwise expressly
required by law or when the Board of Trustees determines that the matter to be
voted upon affects only the interests of the holders of a particular class or
series of shares. In addition, shareholders of each investment portfolio of the
Trust will vote in the aggregate and not by portfolio, except as otherwise
expressly required by law or when the Board of Trustees determines that the
matter to be voted upon affects only the interests of shareholders of a
particular portfolio. Rule 18f-2 (the "Rule") under the 1940 Act provides that
any matter required to be submitted to the holders of the outstanding voting
securities of an investment company such as the Trust shall not be deemed to
have been effectively acted upon unless approved by the holders of a majority of
the outstanding shares of each investment portfolio affected by the matter. An
investment portfolio is affected by a matter unless it is clear that the
interests of each investment portfolio in the matter are substantially identical
or that the matter does not affect any interest of the investment portfolio.
Under the Rule, the approval of an investment advisory agreement or any change
in a fundamental investment policy would be effectively acted upon with respect
to an investment portfolio only if approved by a majority of the outstanding
shares of such investment portfolio. However, the Rule also provides that the
ratification of the appointment of independent public accountants, the
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approval of principal underwriting contracts, and the election of Trustees may
be effectively acted upon by shareholders of the Trust voting together in the
aggregate without regard to a particular investment portfolio. Under the Trust's
Declaration of Trust, when the Board of Trustees determines that a matter to be
voted upon affects only the interests of the shareholders of one or more but not
all the Funds, only the shareholders of the Fund or Funds so affected will be
entitled to vote on the matter.
The Trust's Declaration of Trust authorizes the Board of Trustees,
without shareholder approval (unless otherwise required by applicable law), to
(a) sell and convey the assets of a Fund to another management investment
company for consideration which may include securities issued by the purchaser
and, in connection therewith, to cause all outstanding shares of the Fund
involved to be redeemed at a price which is equal to their net asset value and
which may be paid in cash or by distribution of the securities or other
consideration received from the sale and conveyance; (b) sell and convert a
Fund's assets into money and, in connection therewith, to cause all outstanding
shares of the Fund involved to be redeemed at their net asset value; or (c)
combine the assets belonging to a Fund with the assets belonging to another
investment portfolio of the Trust, if the Board of Trustees reasonably
determines that such combination will not have a material adverse effect on
shareholders of any investment portfolio participating in such combination, and,
in connection therewith, to cause all outstanding shares of any such Fund to be
redeemed at their net asset value or converted into shares of another class or
series of the Trust's shares at net asset value. In the event that shares are
redeemed in cash at their net asset value, a shareholder may receive in payment
for such shares an amount that is more or less than his original investment due
to changes in the market prices of the Fund's portfolio securities. The exercise
of such authority by the Board of Trustees will be subject to the provisions of
the 1940 Act.
DIVIDENDS AND DISTRIBUTIONS
Money Market Funds. Net income for dividend purposes consists of (i)
interest accrued and original issue discount earned on the Fund's assets, (ii)
plus the amortization of market discount (including, in the case of the Tax
Exempt Fund, market discount on tax-exempt obligations purchased after April 30,
1993) and minus the amortization of market premium on such assets, (iii) less
accrued expenses directly attributable to the Fund and the general expenses of
Nations Fund prorated to a Fund on the basis of its relative net assets. Shares
of the Money Market Funds begin earning dividends on the day the purchase order
is executed and continue earning dividends through and including the day before
the redemption order is executed (e.g., the settlement date).
Non-Money Market Funds. With respect to the Non-Money Market Funds, net
investment income for dividend purposes consist of items (i), (ii) and (iii)
discussed above with respect to the Money Market Funds and dividend or
distribution income on such assets.
Shares of the Bond Funds are eligible to begin earning dividends that
are declared on the day the purchase order is executed and continue to be
eligible for dividends through and including the day before the redemption order
is executed. Shares of the Equity Funds and the Balanced Fund are eligible to
receive dividends when declared, provided however, that the purchase order
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for such shares is received at least one day prior to the dividend declaration
and such shares continue to be eligible for dividends through and including the
day before the redemption order is executed.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations
generally affecting the Funds and their shareholders that are not described in
the Prospectuses. No attempt is made to present a detailed explanation of the
tax treatment of the Trust or its shareholders or possible legislative changes,
and the discussion here and in the Prospectuses is not intended as a substitute
for careful tax planning. Potential investors should consult their tax advisors
with specific reference to their own tax situation.
The Trust has received a private letter ruling from the Internal
Revenue Service to the effect that: (i) the differing fees imposed on Primary A,
Primary B, Investor A, Investor B, Investor C (formerly Investor B) and Investor
N (formerly Investor C Shares) Shares with respect to servicing, distribution
and administrative support services, and transfer agency arrangements; the
differing sales charges on purchases and redemptions of such shares; and the
conversion feature of Investor C Shares of the Non-Money Market Funds does not
result in the Trust's dividends or distributions constituting "preferential
dividends" under the Internal Revenue Code of 1986, as amended (the "Code").
FEDERAL TAXES - IN GENERAL
Each Fund of the Trust will be treated as a separate corporate entity
under the Code and intends to qualify as a regulated investment company. As a
regulated investment company, each Fund is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of its
short-term capital gains over net long-term capital losses) and at least 90% of
its tax-exempt income (net of expenses allocable thereto) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by a Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement; a regulated
investment company must (i) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (ii) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
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transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, will not be
characterized as Short-Short Gain if they are directly related to the regulated
investment company's investments in stock or securities (or options or futures
thereon). Because of the Short-Short Gain Test, a Fund may have to limit the
sale of appreciated securities that it has held for less than three months.
However, the Short-Short Gain Test will not prevent a Fund from disposing of
investments at a loss, since the recognition of a loss before the expiration of
the three-month holding period is disregarded. Interest (including original
issue discount) received by a Fund at maturity or upon the disposition of a
security held for less than three months will not be treated as gross income
derived from the sale or other disposition of such security within the meaning
of the Short-Short Gain Test. However, income that is attributable to realized
market appreciation will be treated as gross income from the sale or other
disposition of securities for this purpose.
In general, gain or loss recognized by a Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation (including tax-exempt obligations purchased
after April 30, 1993) purchased by a Fund 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 the market discount which accrued during the period of
time the Fund held the debt obligation. In addition, under the rules of Code
Section 988, gain or loss recognized on the disposition of a debt obligation
denominated in a foreign currency or an option with respect thereto (but only to
the extent attributable to changes in foreign currency exchange rates), and gain
or loss recognized on the disposition of a foreign currency forward contract,
futures contract, option or similar financial instrument, or of foreign currency
itself, will generally be treated as ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by a Fund on the disposition of an asset is long-term or short-term,
the holding period of the asset may be affected if (i) the asset is used to
close a "short sale" (which includes for certain purposes the acquisition of a
put option) or is substantially identical to another asset so used, (ii) the
asset is otherwise held by the Fund as part of a "straddle" (which term
generally excludes a situation where the asset is stock and the Fund grants a
qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (iii) the asset is stock and the
Fund grants an in-the-money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (i) above. In
addition, a Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss
recognized by a Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by a Fund will commence on the date it is written and end on the date it lapses
or the date a closing transaction is entered into. Accordingly, a Fund may be
limited in its ability
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to write options which expire within three months and to enter into closing
transactions at a gain within three months of the writing of options.
Treasury regulations permit a regulated investment company, in
determining its investment company taxable income and net capital gain (i.e.,
the excess of net long-term capital gain over net short-term capital loss) for
any taxable year, to elect (unless it has made a taxable year election for
excise tax purposes as discussed below) to treat all or part of any net capital
loss, any net long-term capital loss or any net foreign currency loss incurred
after October 31 as if they had been incurred in the succeeding year.
In addition to satisfying the requirement described above, each Fund
must satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of the Fund's total assets in securities
of such issuer and as to which the Fund does not hold more than 10% of the
outstanding voting securities of such issuer), and no more than 25% of the value
of its total assets may be invested in the securities of any one issuer (other
than U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses.
If for any taxable year a Fund does not qualify for Federal tax
treatment as a regulated investment company, all of its taxable income
(including its net capital gain) will be subject to Federal income tax at
regular corporate rates without any deduction for distributions to its
shareholders. In such event, dividend distributions (including amounts derived
from interest on Municipal Securities in the case of the Municipal Income Fund,
Short-Term Municipal Income Fund, Intermediate Municipal Bond Fund, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds) would be
taxable as ordinary income to the Fund's shareholders to the extent of the
Fund's current and accumulated earnings and profits.
The Funds also are available for a variety of retirement plans,
including IRAs, that allow investors to shelter some of their income from taxes.
A Tax Free Bond Fund, however, is generally not a suitable investment for
retirement plans because such retirement plans would not gain any benefit from
the tax-exempt nature of the Tax Free Bond Fund's dividends because such
dividends would be ultimately taxable to the beneficiaries when distributed to
them. Investors should contact their Selling Agents for details concerning
retirement plans.
The Funds also are available for a variety of retirement plans,
including IRAs, that allow investors to shelter some of their income from taxes.
A Tax Free Bond, however, is generally not a suitable investment for retirement
plans because such retirement plans would not gain any benefit from the
tax-exempt nature of the Tax Free Fund's dividends because such dividends would
be ultimately taxable to the beneficiaries when distributed to them. Investors
should contact their Selling Agents for details concerning retirement plans.
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Depending upon the extent of a Fund's activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, such Fund may be subject to the tax laws of such states or
localities. In addition, in those states and localities which have income tax
laws, the treatment of a Fund and its shareholders under such laws may differ
from their treatment under Federal income tax laws.
FEDERAL EXCISE TAX ON REGULATED INVESTMENT COMPANIES
A 4% non-deductible excise tax is imposed on a regulated investment
company that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")).
(Tax-exempt interest on Municipal Obligations is not subject to the excise tax.)
The balance of such income must be distributed during the next calendar year.
For the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company may (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
Each Fund intends to make sufficient distributions or deemed
distributions of its ordinary taxable income and capital gain net income to
avoid liability for the excise tax. However, investors should note that a Fund
may in certain circumstances be required to liquidate Fund investments to make
sufficient distributions to avoid excise tax liability.
DISTRIBUTIONS
Each Fund 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 but they will qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent discussed below.
A Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. Each Fund 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 Fund prior to the date on which the
shareholder acquired his/her shares. Conversely, if a Fund elects to retain its
net capital gain, the Fund will be taxed thereon (except to the extent of any
available capital loss carryovers) at the applicable corporate tax rate. If a
Fund elects to retain its net capital gain, it is expected that the Fund also
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will elect to have shareholders treated as if each received a distribution of
its pro rata share of such gain, with the result that each shareholder will be
required to report its pro rata share of such gain on its tax return as
long-term capital gain, will receive a refundable tax credit for its share of
tax paid by the Fund on the gain, and will increase the basis for its shares by
an amount equal to the deemed distribution less the tax credit.
Ordinary income dividends derived from a Fund's investment in the stock
of domestic corporations with respect to a taxable year will qualify for the 70%
dividends received deduction generally available to corporations (other than
corporations, such as "S" corporations, which are not eligible for the deduction
because of their special characteristics and other than for purposes of special
taxes such as the accumulated earnings tax and the personal holding company tax)
to the extent of the amount of qualifying dividends received by the Fund from
domestic corporations for the taxable year. A dividend received by a Fund
investing in the stock of domestic corporations will not be treated as a
qualifying dividend (1) if it has been received with respect to any share of
stock that the Fund has held for less than 46 days (91 days in the case of
certain preferred stock), excluding for this purpose under the rules of Code
Section 246(c)(3) and (4)(A) any day more than 45 days (or 90 days in the case
of certain preferred stock) after the date on which the stock becomes
ex-dividend and (ii) any period during which the Fund has an option to sell, is
under a contractual obligation to sell, has made and not closed a short sale of,
is the grantor of a deep-in-the money or otherwise nonqualified option to buy or
has otherwise diminished its risk of loss by holding other positions with
respect to, such (or substantially identical) stock; (2) to the extent that the
Fund is under an obligation (pursuant to a short sale or otherwise) to make
related payments with respect to positions in substantially similar or related
property; or (3) to the extent the stock on which the dividend is paid is
treated as debt financed under the rules of Code Section 246A. Moreover, the
dividends-received deduction for a corporate shareholder may be disallowed or
reduced (i) if the corporate shareholder fails to satisfy the foregoing
requirements with respect to its shares of the Fund or (ii) by application of
Code Section 246(b) which in general limits the dividends-received deduction to
70% of the shareholder's taxable income (determined without regard to the
dividends-received deduction and certain other items).
For purposes of the corporate alternative minimum tax (the "AMT") and
the environmental superfund tax the corporate dividends received deduction is
not itself an item of tax preference that must be added back to taxable income
or is otherwise disallowed in determining a corporation's alternative minimum
taxable income ("AMTI"). However, corporate shareholders will generally be
required to take the full amount of any dividend received into account (without
a dividends-received deduction) in determining its adjusted current earnings.
Investment income that may be received by certain of the Funds from
sources within foreign countries may be subject to foreign taxes withheld at the
source. The United States has entered into tax treaties with many foreign
countries which entitle any such Fund to a reduced rate of, or exemption from,
taxes on such income. It is impossible to determine the effective rate of
foreign tax in advance since the amount of any such Fund's assets to be invested
in various countries is not known. If more than 50% of the value of the Fund's
total assets at the close of its taxable year consists of the stock or
securities of foreign corporations, the Fund may elect to "pass through" to the
Fund's shareholders the amount of foreign taxes paid by the Fund. If the
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Fund so elects, each shareholder would be required to include in gross income,
even though not actually received, its pro rata share of the foreign taxes paid
by the Fund, but would be treated as having paid its pro rata share of such
foreign taxes and would, therefore, be allowed to either deduct such amount in
computing taxable income or use such amount (subject to various Code
limitations) as a foreign tax credit against federal income tax (but not both).
For purposes of the foreign tax credit limitation rules of the Code, each
shareholder would treat as foreign source income its pro rata share of such
foreign taxes plus the portion of dividends received from the Fund representing
income derived from foreign sources. No deduction for foreign taxes could be
claimed by an individual shareholder who does not itemize deductions.
Distributions by a Fund that do not constitute ordinary income
dividends, exempt-interest dividends or capital gain dividends will be treated
as a return of capital to the extent of (and in reduction of) the shareholder's
tax basis in his/her shares; any excess will be treated as gain from the sale of
his/her shares, as discussed below.
Prior to purchasing shares in one of the Non-Money Market Funds, 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.
Distributions by a Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another Fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder purchases shares of a Fund reflects undistributed net
investment income or recognized capital gain net income, or unrealized
appreciation in the value of the assets of the Fund, distributions of such
amounts will be taxable to the shareholder in the manner described above,
although such distributions economically constitute a return of capital to the
shareholder.
Ordinarily, shareholders are required to take distributions by a Fund
into account in the year in which the distributions are made. However,
distributions declared in October, November or December of any year and payable
to shareholders of record on a specified date in such a month will be deemed to
have been received by the shareholders (and made by the Fund) on December 31 of
such calendar year if such distributions are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) during the year.
The Funds will be required in certain cases to withhold and remit to
the U.S. Treasury 31% of ordinary income dividends and capital gain dividends,
and the proceeds of redemption of shares, paid to any shareholder (1) who has
provided either an incorrect Taxpayer Identification Number or no Taxpayer
Identification Number at all, (2) who is subject to backup withholding by the
Internal Revenue Service for failure to report the receipt of interest or
dividend income
64
<PAGE>
properly, or (3) who has failed to certify to a Fund that it is not subject to
backup withholding or that it is a corporation or other "exempt recipient."
SALE OR REDEMPTION OF SHARES
A shareholder will recognize gain or loss on the sale or redemption of
shares of a Fund in an amount equal to the difference between the proceeds of
the sale or redemption and the shareholder's adjusted tax basis in the shares.
All or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of a Fund will be considered capital gain
or loss and will be long-term capital gain or loss if the shares were held for
longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be disallowed to the
extent of the amount of exempt-interest dividends received on such shares and
(to the extent not disallowed) will be treated as a long-term capital loss to
the extent of the amount of capital gain dividends received on such shares. For
this purpose, the special holding period rules of Code Section 246(c)(3) and (4)
(discussed above in connection with the dividends-received deduction for
corporations) generally will apply in determining the holding period of shares.
None of the Money market Funds expect to realize long-term capital gains, and
therefore, do not foresee payment of any capital gain.
If a shareholder (i) incurs a sales load in acquiring shares of a Fund,
(ii) disposes of such shares less than 91 days after they are acquired and (iii)
subsequently acquires shares of the Fund or another fund at a reduced sales load
pursuant to a right to reinvest at such reduced sales load acquired in
connection with the acquisition of the shares disposed of, then the sales load
on the shares disposed of (to the extent of the reduction in the sales load on
the shares subsequently acquired) shall not be taken into account in determining
gain or loss on the shares disposed of, but shall be treated as incurred on the
acquisition of the shares subsequently acquired.
FOREIGN SHAREHOLDERS
Taxation of a shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or
foreign partnership ("foreign shareholder"), depends on whether the income from
a Fund is "effectively connected" with a U.S. trade or business carried on by
such shareholder.
If the income from a Fund is not effectively connected with a U.S.
trade or business carried on by a foreign shareholder, ordinary income dividends
will be subject to U.S. withholding tax at the rate of 30% (or lower applicable
treaty rate) upon the gross amount of the dividend. Furthermore, such a foreign
shareholder may be subject to U.S. withholding tax at the rate of 30% (or lower
applicable treaty rate) on the gross income resulting from the Fund's election
to treat any foreign taxes paid by its shareholders, but may not be allowed a
deduction against this gross income or a credit against this U.S. withholding
tax for the foreign shareholder's pro rata share of such foreign taxes which it
is treated as having paid. Such a foreign shareholder would generally be exempt
from U.S. federal income tax on gains realized on the sale of shares of a
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Fund, capital gain dividends and exempt-interest dividends and amounts retained
by a Fund that are designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income dividends,
capital gain dividends and any gains realized upon the sale of shares of the
Fund will be subject to U.S. federal income tax at the rates applicable to U.S.
citizens, U.S.
residents or domestic corporations.
In the case of foreign noncorporate shareholders, a Fund may be
required to withhold U.S. federal income tax at a rate of 31% on distributions
that are otherwise exempt from withholding tax (or taxable at a reduced treaty
rate) unless such shareholders furnish the Fund with proper notification of
their foreign status.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign shareholders are urged to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in a Fund,
including the applicability of foreign taxes.
SPECIAL TAX CONSIDERATIONS PERTAINING TO THE VALUE FUND, CAPITAL GROWTH FUND,
EMERGING GROWTH FUND, EQUITY INDEX FUND, DISCIPLINED EQUITY FUND, BALANCED
ASSETS FUND, SHORT INTERMEDIATE GOVERNMENT FUND, SHORT-TERM INCOME FUND,
DIVERSIFIED INCOME FUND AND STRATEGIC FIXED INCOME FUND
With respect to the Value Fund, Capital Growth Fund, Emerging Growth
Fund, Equity Index Fund, Disciplined Equity Fund, Balanced Assets Fund,
Short-Intermediate Government Fund, Short-Term Income Fund, Diversified Income
Fund and Strategic Fixed Income Fund some investments may be subject to special
rules which govern the Federal income tax treatment of certain transactions
denominated in terms of a currency other than the U.S. dollar or determined by
reference to the value of one or more currencies other than the U.S. dollar. The
types of transactions covered by the special rules include the following: (1)
the acquisition of, or becoming the obligor under, a bond or other debt
instrument (including, to the extent provided in Treasury regulations, preferred
stock); (2) the accruing of certain trade receivables and payables; and (3) the
entering into or acquisition of any forward contract, futures contract, option,
and similar financial instrument. The disposition of a currency other than the
U.S. dollar by a U.S. taxpayer is also treated as a transaction subject to the
special currency rules. With respect to transactions covered by the special
rules, foreign currency gain or loss is calculated separately from any gain or
loss on the underlying transaction and is normally taxable as ordinary gain or
loss. The amount of any realized gain or loss on closing out a forward contract
will generally result in a realized capital gain or loss for tax purposes.
Under Code Section 1256, forward currency contracts held by a Fund at
the end of each fiscal year will be required to be "marked-to-market" for
Federal income tax purposes, that is, deemed to have been sold at market value.
Sixty percent (60%) of any net realized gain or loss from any actual sales will
be treated as long-term gain or loss, and the remainder will be treated as
short-term capital gain or loss. Code Section 988 may also apply to forward
contracts. In accordance with Treasury regulations, certain transactions subject
to the special currency rules
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<PAGE>
that are part of a "section 988 hedging transaction" may be integrated and
treated as a single transaction for purposes of the Code and are not subject to
the marked-to-market or loss deferral rules under the Code. Gain or loss
attributable to the foreign currency component of transactions engaged in by a
Fund which are not subject to the special currency rules (such as foreign equity
investments other than certain preferred stocks) will be treated as capital gain
or loss and will not be segregated from the gain or loss on the underlying
transaction.
In the case of an overlap between Sections 1256 and 988, special
provisions determine the character and timing of any income, gain or loss. The
Funds will attempt to monitor Section 988 transactions to avoid an adverse tax
impact.
Investment returns received by the Fund may give rise to withholding
and other taxes imposed by foreign countries, generally at rates from 10% to
40%. Tax conventions between certain countries and the U.S. may reduce or
eliminate such taxes. Foreign countries generally do not impose taxes on capital
gains with respect to investments by nonresident investors. To the extent a Fund
does pay foreign withholding or other foreign taxes on certain of its
investments, investors will be unable to take a deduction or receive a tax
credit with respect to such foreign taxes in computing their U.S. tax liability,
since investment by the Funds in foreign investments is limited.
SPECIAL TAX CONSIDERATIONS PERTAINING TO THE MUNICIPAL INCOME FUND, SHORT-TERM
MUNICIPAL INCOME FUND, INTERMEDIATE MUNICIPAL BOND FUND, THE STATE INTERMEDIATE
MUNICIPAL BOND FUNDS AND THE STATE MUNICIPAL BOND FUNDS
As described above and in the Prospectuses, the Tax-Free Bond Funds are
designed to provide investors with current tax-exempt interest income. Each Fund
is not intended to constitute a balanced investment program and is not designed
for investors seeking capital appreciation or maximum tax-exempt income
irrespective of fluctuations in principal. Shares of a Fund would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, H.R. 10 plans, and individual
retirement accounts since such plans and accounts are generally tax-exempt and,
therefore, would not gain any additional benefit from the Fund's dividends being
tax-exempt.
The Municipal Income Fund, Short-Term Municipal Income Fund,
Intermediate Municipal Bond Fund, the State Intermediate Municipal Bond Funds
and the State Municipal Bond Funds are designed to provide investors with a high
level of income exempt from Federal and, with respect to the Florida
Intermediate Municipal Bond Fund and Florida Municipal Bond Fund, Georgia
Intermediate Municipal Bond Fund and Georgia Municipal Bond Fund, Maryland
Intermediate Municipal Bond Fund and Maryland Municipal Bond Fund, North
Carolina Intermediate Municipal Bond Fund and North Carolina Municipal Bond
Fund, South Carolina Intermediate Municipal Bond Fund and South Carolina
Municipal Bond Fund, Tennessee Intermediate Municipal Bond Fund and Tennessee
Municipal Bond Fund, and Virginia Intermediate Municipal Bond Fund and Virginia
Municipal Bond Fund, Florida state intangibles tax, and the Georgia, Maryland,
North Carolina, South Carolina, Tennessee, or Virginia state income tax,
respectively. Florida and Texas do not presently impose any income tax but
Florida and Georgia currently impose a state intangibles tax on intangible
personal property. Exempt-
67
<PAGE>
interest dividends may be treated by the shareholders as items of interest
excludable from their gross income under Section 103(a) of the Code. An
exempt-interest dividend is any dividend or part thereof (other than a capital
gain dividend) paid by a Fund and designated as an exempt-interest dividend in a
written notice mailed to shareholders not later than sixty days after the close
of the Funds' taxable year. However, the aggregate amount of dividends so
designated by a Fund cannot exceed the excess of the amount of interest exempt
from tax under Section 103 of the Code received by a Fund during the taxable
year over any amounts disallowed as deductions under Sections 265 and 171(a)(2)
of the Code. The percentage of the total dividends paid for any taxable year
which qualifies as exempt-interest dividends will be the same for all
shareholders receiving dividends from the same Fund with respect to such year,
regardless of the period for which the shares were held. In order for a Fund to
pay exempt-interest dividends for any taxable year, at the close of each quarter
of its taxable year at least 50% of the aggregate value of the Fund's assets
must consist of exempt-interest obligations.
Shareholders are advised to consult their tax advisers with respect to
whether exempt-interest dividends would retain the exclusion under Section
103(a) if the shareholder would be treated as a "substantial user" or a "related
person" to such user with respect to facilities financed through any of the
tax-exempt obligations held by a Fund. A "substantial user" is defined under
U.S. Treasury Regulations to include a non-exempt person who regularly uses a
part of such facilities in his trade or business and whose gross revenues
derived with respect to the facilities financed by the issuance of bonds are
more than 5% of the total revenues derived by all users of such facilities, or
who occupies more than 5% of the usable area of such facilities or for whom such
facilities or a part thereof were specifically constructed, reconstructed, or
acquired. A "related person" includes certain related natural persons,
affiliated corporations, partners and partnerships, and S corporations and their
shareholders.
The Code treats interest on private activity bonds, as defined therein,
as an item of tax preference subject to the federal alternative minimum tax (the
"AMT") on individuals and corporations at the applicable tax rates. As of the
printing of this SAI, individuals are subject to AMT at a maximum marginal rate
of 28% and corporations at a rate of 20%. Shareholders are advised to consult
their tax advisers with respect to other "tax preference items" and
"adjustments" which must be considered when calculating the shareholders' AMT.
Corporate shareholders will generally be required to include all interest on
municipal bonds and other tax-exempt obligations (including exempt-interest
dividends paid by a Fund) in adjusted current earnings in calculating federal
alternative minimum taxable income. The receipt of tax-exempt amounts may also
affect corporate federal environmental tax liability.
Interest on indebtedness incurred by a shareholder to purchase or carry
Fund shares is not deductible for Federal income tax purposes if that Fund
distributes exempt-interest dividends during the shareholder's taxable year. In
addition, if a shareholder holds Fund 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, however, is authorized to issue regulations reducing the
six months holding requirement to a period of not less than the greater of 31
days or the period between regular dividend distributions where the investment
company regularly distributes at least 90% of its net tax-exempt interest. No
such regulations had been issued as of the date of this SAI.
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<PAGE>
Although each Fund expects to qualify as a "regulated investment
company" and to be relieved of substantially all Federal and, in the case of the
Florida Intermediate Municipal Bond Fund and Florida Municipal Bond Fund,
Georgia Intermediate Municipal Bond Fund and Georgia Municipal Bond Fund,
Maryland Intermediate Municipal Bond Fund and Maryland Municipal Bond Fund,
North Carolina Intermediate Municipal Bond Fund and North Carolina Municipal
Bond Fund, South Carolina Intermediate Municipal Bond Fund and South Carolina
Municipal Bond Fund, Tennessee Intermediate Municipal Bond Fund and Tennessee
Municipal Bond Fund, and Virginia Intermediate Municipal Bond Fund and Virginia
Municipal Bond Fund, Florida State intangible tax, and the Georgia, Maryland,
North Carolina, South Carolina, Tennessee or Virginia state income taxes,
respectively, depending upon the extent of its activities in states and
localities in which its offices are maintained, in which its agents or
independent contractors are located, or in which it is otherwise deemed to be
conducting business, the Funds may be subject to the tax laws of such states or
localities.
Distributions other than exempt-interest dividends, including
distributions of interest in Municipal Securities issued by other issuers and
all long-term and short-term capital gains will be subject to state income tax
(other than Florida and Texas) unless specifically exempted by statute
including, in the case of Virginia, statutory provisions creating the agency or
political subdivision.
Florida does not impose a personal income tax, but does impose an
annual intangible personal property tax on intangible personal property
(including but not limited to stocks or shares of business trusts or mutual
funds) held by persons domiciled in the State of Florida, regardless of where
such property is kept. Florida counsel has, however, advised the Fund that
shares in the Nations Florida Intermediate Municipal Bond Fund and the Nations
Florida Municipal Bond Fund shall not be subject to Florida's intangible
personal property tax if on January 1 of each tax year the portfolio of such
Fund consists exclusively of obligations of the government of the United States
of America, its agencies, instrumentalities, the Commonwealth of Puerto Rico,
the government of Guam, the government of American Samoa, the government of the
Northern Mariana Islands, the State of Florida, its political subdivisions,
municipalities or other taxing districts. Nations Fund has received a Technical
Assistance Advisement from the Florida Department of Revenue confirming the
foregoing.
Although the Nations Florida Intermediate Municipal Bond Fund and
Nations Florida Municipal Bond Fund anticipate that the portfolio will
exclusively contain assets that are exempt from Florida's intangible personal
property tax on January 1 of each tax year, it may be possible that the
portfolio will have a small portion of its assets invested temporarily in assets
on such date which are not exempt from Florida's annual intangible personal
property tax. In this situation, only the portion of the net asset value of the
portfolio which is made up of direct obligations of the United States of
America, its agencies, territories and possessions (as described above) may be
removed from the net asset value for purposes of computing the intangible
personal property tax. The remaining net asset value of the portfolio and hence
a portion of the net asset value of the shares in the Nations Florida
Intermediate Municipal Bond Fund and Nations Florida Municipal Bond Fund would
be subject to the intangible personal property tax. Notice as to the tax status
of your shares will be mailed to you annually. Owners of shares in the Nations
Florida Intermediate Municipal Bond Fund or Nations Florida Municipal Bond Fund
should consult their tax advisers with specific reference to their own tax
situation if advised that a portion of the portfolio of such
69
<PAGE>
Funds consisted on January 1 of any year of assets which are not exempt from
Florida's annual intangible personal property tax. Such annual intangible
personal property tax, if any, is due and payable on June 30 of such year in
which the tax liability arises.
Nations Georgia Intermediate Municipal Bond Fund's and Nations Georgia
Municipal Bond Fund's shareholders residing in Georgia will be subject to the
Georgia state intangibles tax with respect to their shares, notwithstanding that
such Funds' underlying assets contain direct obligations of the government of
the United States of America, Puerto Rico, and the State of Georgia, which, in
held directly, would be exempt from the Georgia state intangibles tax.
Nations Georgia Intermediate Municipal Bond Fund's and Nations Georgia
Municipal Bond Fund's shareholders residing in Georgia will be subject to the
Georgia state intangibles tax with respect to their shares, notwithstanding that
such Funds' underlying assets contain direct obligations of the government of
the United States of America, Puerto Rico, and the State of Georgia, which, if
held directly, would be exempt from the Georgia state intangibles tax. However,
the Georgia state intangibles tax is under attack in a case pending in Dekalb
County Superior Court (Lombard Corporation v. Colline et al.) and a
constitutional amendment authorizing the repeal of the intangibles tax is
expected to be approved during the 1996 session of the Georgia General Assembly
(H.R. 734).
Nations Maryland Intermediate Municipal Bond Fund's and Nations
Maryland Municipal Bond Fund's shareholders who are residents of Maryland must
add to their federal adjusted gross income 50% of their federal tax preference
items (which include interest amounts from private activity bonds) the sum total
of which is in excess of $10,000 for an individual return (or $20,000 for a
joint return) when determining their Maryland adjusted gross income.
Shareholders who are nonresidents of Maryland are required to include only those
tax preference items that are based on income taxable in Maryland.
For tax years beginning after 1994, the deduction for South Carolina
taxable income purposes for the net capital gains recognized from the sale or
exchange of an asset which has been held for a period of two or more years has
been increased from 29% to 44%.
The Tennessee Hall Income Tax imposes a tax on income received by way
of dividends from stock or interest on bonds. Dividends from a qualified
regulated investment company are exempt from the Hall Income Tax, but only to
the extent attributable to interest on bonds or securities of the U.S.
Government or any agency or instrumentality thereof or on bonds of the State of
Tennessee or any county or any municipality or political subdivision thereof,
including any agency, board, authority or commission of any of the above.
According to the Tax Foundation in Washington, D.C., it is estimated
that "tax freedom day" usually falls around May 3rd across the country. On
average, the money earned by an individual prior to that date goes to the
payment of taxes. In addition, The Tax Foundation estimates that the average
taxpayer needs to work 2 hours and 41 minutes during an eight-hour day to cover
federal, state and local taxes. In contrast, it takes only 57 minutes to cover
the average cost of housing and household expenses. In recent years, tax-free
bonds have been in high demand due to high tax rates and fewer available tax
deductions. Insured certificates of
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<PAGE>
deposit and money market funds have traditionally offered a solid way to
preserve capital and enjoy competitive yields. But yields on these investments
have declined considerably. Because of that, more and more investors have found
it beneficial to look for conservative higher-yielding alternatives, especially
those that also offer tax relief.
The foregoing general discussion of U.S. federal income tax
consequences is based on the Code and the regulations issued thereunder as in
effect on the date of this SAI. Future legislative or administrative changes or
court decisions may significantly change the conclusions expressed herein, and
any such changes or decisions may have a retroactive effect with respect to the
transactions contemplated herein.
Rules of state and local taxation for ordinary income dividends,
exempt-interest dividends and capital gain dividends from regulated investment
companies often differ from the rules for U.S. federal income taxation described
above. Distributions of net investment income may be taxable to shareholders as
dividend income under state or local law even though a substantial portion of
such distributions may be derived from interest on U.S. Government obligations,
which, if realized directly, would be exempt from such taxes. Shareholders are
urged to consult their tax advisers as to the consequences of these and other
state and local tax rules affecting investment in the Funds.
TRUSTEES AND OFFICERS
The Trustees and executive officers of the Trust, their addresses,
principal occupations during the past five years, and other affiliations are as
set forth below. The address of each, unless otherwise indicated, is 111 Center
Street, Little Rock, Arkansas 72201. Those Trustees who are "interested persons"
of the Trust (as defined in the 1940 Act) are indicated by an asterisk (*).
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION DURING
NAME, ADDRESS AND AGE THE TRUST PAST 5 YEARS AND CURRENT DIRECTORSHIPS
- --------------------- -------------- --------------------------------------
<S> <C> <C>
Edmund L. Benson, III, 59 Trustee Director, President and Treasurer, Saunders &
Saunders & Benson, Inc. Benson, Inc. (insurance); Trustee, Nations
728 East Main Street Institutional Reserves, Director, Nations Fund,
Suite 400 Inc. and Nations Fund Portfolios, Inc.
Richmond, VA 23219
71
<PAGE>
James Ermer, 53 Trustee Senior Vice President -- Finance, CSX Corporation
13705 Hickory Nut Point (transportation and natural resources); Director,
Midlothian, VA 23112 National Mine Service; Director, Lawyers Title
Corporation; Trustee, Nations Institutional
Reserves; Director, Nations Fund, Inc. and Nations
Fund Portfolios, Inc.
William H. Grigg, 63 Trustee Since April 1994, Chairman and Chief Executive
Duke Power Co. Officer; November 1991 to April 1994, Vice
422 South Church Street Chairman, Duke Power Co.; from April 1988 to
PB04G November 1991, Executive Vice President --
Charlotte, NC 28242-0001 Customer Group, Duke Power Co., Director, Hatteras
Income Securities, Inc., Nations Government Income
Term Trust 2003, Inc., Nations Government Income
Term Trust 2004, Inc., Nations Balanced Target
Maturity Fund, Inc., Nations Fund, Inc. and
Nations Fund Portfolios, Inc.; Trustee, Nations
Institutional Reserves
Thomas F. Keller, 64 Trustee R.J. Reynolds Industries Professor of Business
Fuqua School of Business Administration and Dean, Fuqua School of Business,
P.O. Box 90120 Duke University; Director LADD Furniture, Inc.,
Duke University Director, Wendy's International Mentor Growth Fund
Durham, NC 27708-0120 and Cambridge 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.; Nations Fund, Inc. and Nations Fund
Portfolios, Inc.; Trustee, Nations Institutional
Reserves
Carl E. Mundy, Jr., 61 Trustee Commandant, United States Marine Corps, from July
9308 Ludgate Drive 1991 to July 1995, Commanding General, Marine
Alexandria, VA 22309 Forces Atlantic, from June 1990 to June 1991;
Director, Nations Fund, Inc. and Nations Fund
Portfolios, Inc.; Trustee, Nations Institutional
Reserves
A. Max Walker*, 74 President, Trustee Financial consultant, formerly President, A. Max
4580 Windsor Gate Court and Chairman of the Walker, Inc.; Director and Chairman of the Board,
Atlanta, GA 30342 Board Hatteras Income Securities, Inc., Nations
72
<PAGE>
Government Income Term Trust 2003, Inc., Nations
Government Income Term Trust 2004, Inc., Nations
Balanced Target Maturity Fund, Inc.; Nations Fund,
Inc. and Nations Fund Portfolios, Inc.; President
and Chairman of the Board of Trustees, Nations
Institutional Reserves
Charles B. Walker, 57 Trustee Since 1989, Director, Executive Vice President,
Ethyl Corporation Chief Financial Officer and Treasurer, Ethyl
330 South Fourth Street Corporation (chemicals, plastics and aluminum
Richmond, VA 23219 manufacturing); since 1994, Vice Chairman, Ethyl
Corporation and Vice Chairman, Chief Financial
Officer and Treasurer, Albemarle Corporation;
Director, Nations Fund, Inc. and Nations Fund
Portfolios, Inc.; Trustee, Nations Institutional
Reserves
Thomas S. Word, Jr.*, 58 Trustee Partner, McGuire Woods Battle & Boothe (law);
McGuire, Woods, Battle & Boothe Director, Vaughan Bassett Furniture Company,
One James Center, 8th Floor Director V-B/Williams Furniture Company, Inc.;
Richmond, VA 23219 Director, Nations Fund, Inc. and Nations Fund
Portfolios, Inc.; Trustee, Nations Institutional
Reserves
Richard H. Blank, Jr., 39 Secretary Since 1994, Vice President of Mutual Funds
Stephens Inc. Services, Stephens Inc. 1990 to 1994, Manager
Mutual Fund Services, Stephens Inc. 1983 to 1990,
Associate in Corporate Finance Department,
Stephens Inc.
Michael W. Nolte, 35 Assistant Secretary Associate, Financial Services Group of Stephens
Stephens Inc. Inc.
Louise P. Newcomb, 43 Assistant Secretary Corporation Syndicate Associate, Stephens Inc.
Stephens Inc.
James E. Banks, 39 Assistant Secretary Since 1993 Attorney, Stephens Inc.; Associate
Stephens Inc. Corporate Counsel, Federated Investors; from 1991
to 1993, Staff Attorney, Securities and
73
<PAGE>
Exchange Commission from 1988 to 1991.
Richard H. Rose, 40 Treasurer Since 1994, Vice President, Division Manager, The
the Shareholder Services Group, Inc. Shareholder Services Group, since 1988, Senior
One Exchange Place Vice President, The Boston Company Advisors, Inc.
Boston, MA 02109
Joseph C. Viselli, 32 Assistant Treasurer Assistant Vice President, The Boston Company
The Shareholder Services Group, Inc. Advisors, Inc. since April 1992.
One Exchange Place
Boston, MA 02109
</TABLE>
74
<PAGE>
COMPENSATION TABLE
<TABLE>
<CAPTION>
AGGREGATE ESTIMATED ANNUAL
COMPENSATION PENSION OR RETIREMENT BENEFITS UPON TOTAL COMPENSATION FROM
NAME OF PERSON FROM BENEFITS ACCRUED AS RETIREMENT REGISTRANT AND FUND
POSITION (1) REGISTRANT (2) PART OF FUND EXPENSES COMPLEX(1)
------------ -- -------------- --------------------- ----------------- ----------------------
<S> <C> <C> <C> <C>
Edmund L. Benson, III, $ 24,381 $ 19,488 $ 21,000 $ 49,119
Trustee
James Ermer $ 22,875 $ 19,488 $ 21,000 $ 44,250
Trustee
William H. Grigg $ 25,349 $ 19,488 $ 21,000 $ 66,397
Trustee
Thomas F. Keller $ 25,434 $ 19,488 $ 21,000 $ 68,597
Trustee
A. Max Walker $ 25,375 $ 19,488 $ 25,000 $ 75,250
Chairman of the Board
Charles B. Walker $ 22,375 $ 19,488 $ 21,000 $ 43,750
Trustee
Thomas S. Word $ 25,426 $ 19,488 $ 21,000 $ 51,579
Trustee
Carl E. Mundy, Jr. $ 11,375 $ 0 $ 21,000 $ 25,875
Trustee
</TABLE>
(1) The Compensation Table provides data concerning the compensation paid to
Trustees of the Trust during the twelve-month period ended March 31, 1996.
(2) All trustees receive reimbursements for expenses related to their attendance
at meetings of the Board of Trustees. Officers of the Trust receive no
direct remuneration in such capacity from the Trust.
(3) For the fiscal period from December 1, 1995 to March 31, 1996. Each Trustee
receives (i) an annual retainer of $1,000 ($3,000 for the Chairman of the
Board) plus $500 for each Fund of the Trust, plus (ii) a fee of $1,000 for
attendance at each "in-person" meeting of the Board of Trustees (or
committee thereof) and $500 for attendance at each other meeting of the
Board of Trustees (or Committee thereof).
(3) Messrs. Grigg, Keller and A.M. Walker receive compensation from eight
investment companies, including the Trust, that are deemed to be part of the
Nations Fund "fund complex," as that term is defined under Rule 14a-101 of
the Securities Exchange Act of 1934, as amended. Messrs. Benson, Ermer, C.
Walker, Mundy and Word receive compensation from four investment companies,
including the Trust, deemed to be part of the Nations Fund complex.
(1) Total compensation amounts include deferred compensation (including
interest) payable to or accrued for the following Trustees: Edmund L.
Benson, III ($28,994.19); William H. Grigg ($54,397.01); Thomas F. Keller
($58,096.19); and Thomas S. Word ($58,078.37).
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<PAGE>
Mr. Rose serves as Treasurer to certain other investment companies for
which First Data (the "Co-Administrator") or its affiliates serve as sponsor,
distributor, administrator and/or investment adviser.
Each Trustee of the Trust is also a Director of Nations Fund, Inc. and
Nations Fund Portfolios, Inc. and a trustee of Nations Institutional Reserves,
each, a registered investment company that is part of the Nations Fund family of
funds. Richard H. Blank, Jr., Richard H. Rose, Joseph C. Viselli, Michael W.
Nolte, Louise P. Newcomb and James E. Banks, Jr. also are officers of Nations
Fund, Inc., Nations Fund Portfolios, Inc. and Nations Institutional Reserves.
Each Trustee receives (i) an annual retainer of $1,000 ($3,000 for the
Chairman of the Board) plus $500 for each Fund of the Trust, plus (ii) a fee of
$1,000 for attendance at each "in-person" meeting of the Board of Trustees (or
committee thereof) and $500 for attendance at each other meeting of the Board of
Trustees (or committee thereof). All Trustees receive reimbursements for
expenses related to their attendance at meetings of the Board of Trustees.
Officers receive no direct remuneration in such capacity from the Trust.
For the fiscal period ended March 31, 1996, such fees and expenses
totalled $7,770.00. No person who is an officer, director, or employee of
NationsBank or its affiliates serves as an officer, Trustee, or employee of the
Trust. The Trustees and officers of Nations Fund own less than 1% of the shares
of the Trust.
The Trust has adopted a Code of Ethics which, among other things,
prohibits each access person of the Trust from purchasing or selling securities
when such person knows or should have known that, at the time of the
transaction, the security (i) was being considered for purchase or sale by a
Fund, or (ii) was being purchased or sold by a Fund. For purposes of the Code of
Ethics, an access person means (i) a Trustee or officer of the Trust, (ii) any
employee of the Trust (or any company in a control relationship with the Trust)
who, in the course of his/her regular duties, obtains information about, or
makes recommendations with respect to, the purchase or sale of securities by the
Trust, and (iii) any natural person in a control relationship with the Trust who
obtains information concerning recommendations made to the Trust regarding the
purchase or sale of securities. Portfolio managers and other persons who assist
in the investment process are subject to additional restrictions, including a
requirement that they disgorge to the Trust any profits realized on short-term
trading (i.e., the purchase/sale or sale/purchase of securities within any
60-day period). The above restrictions do not apply to purchases or sales of
certain types of securities, including money market instruments and certain U.S.
Government securities. To facilitate enforcement, the Code of Ethics generally
requires that the Trust's access persons, other than its "disinterested"
Trustees, submit reports to the Trust's designated compliance person regarding
transactions involving securities which are eligible for purchase by a Fund.
NATIONS FUNDS RETIREMENT PLAN
Under the terms of the Nations Funds Retirement Plan for Eligible
Trustees (the "Retirement Plan"), each trustee may be entitled to certain
benefits upon retirement from the Board of Trustees. Pursuant to the Retirement
Plan, the normal retirement date is the date on which the eligible trustee has
attained age 65 and has completed at least five years of continuous
76
<PAGE>
service with one or more of the open-end investment companies ("Funds") advised
by the Adviser. If a trustee retires before reaching age 65, no benefits are
payable. Each eligible trustee is entitled to receive an annual benefit from the
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 trustee's
fees payable by the Funds during the calendar year in which the trustee's
retirement occurs multiplied by the number of years of service (not in excess of
ten years of service) completed with respect to any of the Funds. Such benefit
is payable to each eligible trustee in quarterly installments for a period of no
more than five years. If an eligible trustee dies after attaining age 65, the
trustee's surviving spouse (if any) will be entitled to receive 50% of the
benefits that would have been paid (or would have continued to have been paid)
to the trustee if he had not died. The Retirement Plan is unfunded. The benefits
owed to each trustee are unsecured and subject to the general creditors of the
Funds. At present the Plan is not in effect and therefore there are no fees to
disclose.
NATIONS FUNDS DEFERRED COMPENSATION PLAN
Under the terms of the Nations Funds Deferred Compensation Plan for
Eligible Trustees (the "Deferred Compensation Plan"), each trustee may elect, on
an annual basis, to defer all or any portion of the annual board fees (including
the annual retainer and all attendance fees) payable to the trustee for that
calendar year. An application was submitted to and approved by the SEC to permit
deferring trustees to elect to tie the rate of return on fees deferred pursuant
to the Deferred Compensation Plan to one or more of certain investment
portfolios of certain Funds. Distributions from the deferring trustees' deferral
accounts will be paid in cash, in generally equal quarterly installments over a
period of five years beginning on the date the deferring trustee's retirement
benefits commence under the Retirement Plan. The Board of Trustees, in its sole
discretion, may accelerate or extend such payments after a trustee's termination
of service. If a deferring trustee dies prior to the commencement of the
distribution of amounts in his 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 trustee's death. If a deferring 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 trustee. Amounts payable
under the Deferred Compensation Plan are not funded or secured in any way and
deferring trustees have the status of unsecured creditors of the Funds from
which they are deferring compensation.
SHAREHOLDER AND TRUSTEE LIABILITY
Under Massachusetts law, shareholders of a business trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust. However, the Trust's Declaration of Trust provides that
shareholders shall not be subject to any personal liability for the acts or
obligations of the Trust, and that every note, bond, contract, order, or other
undertaking made by the Trust shall contain a provision to the effect that the
shareholders are not personally liable thereunder. The Declaration of Trust
provides for indemnification out of the trust property of any shareholder held
personally liable solely by reason of his being or having been a shareholder and
not because of his acts or omissions or some other reason. The
77
<PAGE>
Declaration of Trust also provides that the Trust shall, upon request, assume
the defense of any claim made against any shareholder for any act or obligation
of the Trust and shall satisfy any judgment thereon. Thus, the risk of a
shareholder incurring financial loss on account of shareholder liability is
limited to circumstances in which the Trust itself would be unable to meet its
obligations.
The Declaration of Trust states further that no Trustee, officer, or
agent of the Trust shall be personally liable for or on account of any contract,
debt, tort, claim, damage, judgment, or decree arising out of or connected with
the administration or preservation of the trust estate or the conduct of any
business of the Trust; nor shall any Trustee be personally liable to any person
for any action or failure to act except by reason of his own bad faith, willful
misfeasance, gross negligence, or reckless disregard of his duties as Trustee.
The Declaration of Trust also provides that all persons having any claim against
the Trustees or the Trust shall look solely to the trust property for payment.
With the exceptions stated, the Declaration of Trust provides that a
Trustee is entitled to be indemnified against all liabilities and expenses
reasonably incurred by him in connection with the defense or disposition of any
proceeding in which he may be involved or with which he may be threatened by
reason of his being or having been a Trustee, and that the Trustees have the
power, but not the duty, to indemnify officers and employees of the Trust unless
any such person would not be entitled to indemnification had he or she been a
Trustee.
INVESTMENT ADVISORY, ADMINISTRATION, CUSTODY,
TRANSFER AGENCY, SHAREHOLDER SERVICING,
SHAREHOLDER ADMINISTRATION AND DISTRIBUTION AGREEMENTS
INVESTMENT ADVISER
Effective January 1, 1996, NBAI began serving as investment adviser to
the Funds of the Trust, pursuant to an Investment Advisory Agreement dated
January 1, 1996. Effective January 1, 1996, TradeStreet began serving as
sub-investment adviser to the Funds of the Trust, pursuant to a Sub-Advisory
Agreement dated January 1, 1996.
NBAI also serves as the investment adviser to Nations Fund, Inc.,
Nations Institutional Reserves and Nations Fund Portfolios, Inc., each a
registered investment company that is part of the Nations Fund Family. In
addition, NBAI serves as the investment advisor to Hatteras Income Securities,
Inc., Nations Government Income Term Trust 2003, Inc., Nations Government Income
Term Trust 2004, Inc. and Managed Balanced Target Maturity Fund, Inc., each a
closed-end diversified management investment company traded on the New York
Stock Exchange. TradeStreet also serves as the sub-investment adviser to all of
the funds of Nations Fund, Inc., except the International Equity Fund, and to
Nations Institutional Reserves, Hatteras Income Securities, Inc., Nations
Government Income Term Trust 2003, Inc., Nations Government Income Term Trust
2004, Inc. and Managed Balanced Target Maturity Fund, Inc.
78
<PAGE>
NBAI and TradeStreet are each wholly owned banking subsidiaries of
NationsBank, which in turn is a wholly owned banking subsidiary of NationsBank
Corporation, a bank holding company organized as a North Carolina corporation.
Prior to January 1, 1996, NationsBank, through its investment
management division, served as investment adviser to the Funds. NationsBank is
successor to NationsBank of North Carolina, N.A. which was merged with and into
NationsBank of South Carolina, N.A., effective January 3, 1995. The resulting
entity was renamed NationsBank, N.A. (Carolinas). NationsBank is a wholly owned
subsidiary of NationsBank Corporation, a bank holding company. Prior to June 30,
1992, NationsBank of Georgia, N.A. served as the Investment Adviser to the
Trust. On December 31, 1991 an Agreement and Plan of Consolidation between NCNB
Corporation ("NCNB") and C&S Sovran Corporation ("C&S/Sovran") was consummated
whereby C&S/Sovran was merged into and became a wholly owned subsidiary of NCNB
and NCNB changed its name to NationsBank Corporation. In anticipation of this
transaction, the prior investment adviser for the Trust was changed from Sovran
Bank, N.A., to C&S/Sovran Trust Company (Georgia), N.A. After the merger of
C&S/Sovran and NCNB was completed, C&S Sovran Trust Company (Georgia), N.A.,
changed its name to NationsBank Trust Company (Georgia), N.A., and subsequently
merged into NationsBank of Georgia, N.A. which continued to serve as the
investment adviser to Nations Fund Trust until June 30, 1992. Prior to the
merger of NCNB and C&S/Sovran, NationsBank (formerly NCNB National Bank of North
Carolina) served and continues to serve as investment adviser to all of the
Funds of the Trust pursuant to an amendment to its investment advisory
agreements. NationsBank and NationsBank of Georgia, N.A. are wholly owned
subsidiaries of NationsBank Corporation.
Since 1874, NationsBank and its predecessors have been managing money
for foundations, universities, corporations, institutions and individuals.
Today, NationsBank affiliates collectively manage in excess of $60 billion,
including the more than $18 billion in mutual fund assets. It is a company
dedicated to a goal of providing responsible investment management and superior
service. NationsBank is recognized for its sound investment approaches, which
place it among the nation's foremost financial institutions. NationsBank and its
affiliates organization makes available a wide range of financial services to
its over 6 million customers through over 1700 banking and investment centers.
Approximately 12 of NationsBank personnel are involved in stock and bond
research.
NationsBank restructured its investment management division as of
January 1, 1996 by reorganizing the division into two separate, wholly owned
advisory subsidiaries, NBAI and TradeStreet. The restructuring resulted in the
transfer of the division's investment management and advisory functions to NBAI,
and its day to day investment company portfolio management functions to
TradeStreet. The investment professionals who performed investment company
management functions and who managed the companies portfolios as employees of
NationsBank continue to perform such services as employees of NBAI and
TradeStreet, respectively. The restructuring did not change the scope and nature
of investment advisory services provided to the relevant Funds. The
restructuring, and related Investment Advisory Agreement and Sub-Advisory
Agreement, were approved by the Board of Trustees of the Trust at the October
12-13, 1995 Board Meeting.
79
<PAGE>
The Investment Advisory Agreement for NBAI and Sub-Advisory Agreement for
TradeStreet each provides that in the absence of willful misfeasance, bad faith,
negligence or reckless disregard of obligations or duties thereunder on the part
of NBAI or Trade Street, respectively, or any of their respective officers,
directors, employees or agents, NBAI or TradeStreet shall not be subject to
liability to the Trust or to any shareholder of the Trust for any act or
omission in the course of, or connected with, rendering services thereunder or
for any losses that may be sustained in the purchase, holding or sale of any
security.
The Investment Advisory Agreement shall become effective with respect to a
Fund if and when approved by the Trustees of the Trust, 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 Trust's
Board of Trustees or (ii) the vote of "a majority of the outstanding voting
securities" of a Fund (as defined in Section 2(a)(42) of the 1940 Act), and (b)
the affirmative vote of a majority of the Trust's Trustees who are not parties
to such Agreement or "interested persons" (as defined in the 1940 Act) of a
party to such Agreement (other than as Trustees of the Trust), by votes cast in
person at a meeting specifically called for such purpose.
The Investment Advisory Agreement will terminate automatically in the
event of its assignment, and is terminable with respect to a Fund at any time
without penalty by the Trust (by vote of the Board of Trustees or by vote of a
majority of the outstanding voting securities of the Fund) or by NBAI on 60
days' written notice.
The Sub-Advisory Agreement shall become effective with respect to each
Fund as of its execution date and, unless sooner terminated, shall continue in
full force and effect for one year, and may be continued with respect to each
Fund thereafter, provided that the continuation of the Agreement is specifically
approved at least annually by (a) (i) the Trust's Board of Trustees or (ii) the
vote of "a majority of the outstanding voting securities" of a Fund (as defined
in Section 2(a)(42) of the 1940 Act), and (b) the affirmative vote of a majority
of the Trust's Trustees who are not parties to such Agreement or "interested
persons" (as defined in the 1940 Act) of a party to such Agreement (other than
as Trustees of the Trust), by votes cast in person at a meeting specifically
called for such purpose.
The Sub-Advisory Agreement will terminate automatically in the event of
its assignment, and is terminable with respect to a Fund at any time without
penalty by the Trust (by vote of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Fund), or by NBAI, or by TradeStreet
on 60 days' written notice.
The table below states the net advisory fees paid to NationsBank and/or
its wholly-owned affiliate NBAI, the advisory fees waived and expense
reimbursements where applicable for the fiscal period from December 1, 1995 to
March 31, 1996.
80
<PAGE>
ADVISORY FEES
<TABLE>
<CAPTION>
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
<S> <C> <C> <C>
Nations
Government $ 195,815.00 $442,122.00 $ 0.00
Money
Market Fund
Nations Tax
Exempt
Fund $ 600,930.00 $ 1,248,939.00 $ 0.00
Nations $ 2,808,328.00 $ 0.00 $ 0.00
Value Fund
Nations
Capital
Growth Fund $ 2,253,497.00 $ 0.00 $ 0.00
Nations
Disciplined
Equity Fund $ 339,082.00 $ 0.00 $ 0.00
Nations
Equity
Index Fund $ 64,773.00 $ 0.00 $ 0.00
Nations
Emerging
Growth Fund $ 777,193.00 $ 0.00 $ 0.00
Nations
Balanced
Assets Fund $ 590,332.00 $ 00.0 $ 0.00
Nations
Short-Inter-
mediate $ 619,149.00 $ 384,547.00 $ 0.00
Gov't Fund
Nations
Short-Term
Income Fund $ 173,410.00 $ 216,740.00 $ 0.00
Nations
Diversified
Income Fund $ 286,700.00 $ 57,340.00 $ 0.00
Nations
Strategic
Fixed $ 1,388,673.00 $ 294,244.00 $ 0.00
Income Fund
Nations
Municipal
Income Fund $ 114,363.00 $ 117,368.00 $ 0.00
Nations
Short-Term
Municipal
Income
Fund $ 12,972.00 $ 99,745.00 $ 0.00
Nations
Intermediate
Municipal $ 45,524.00 $ 89,165.00 $ 0.00
Bond Fund
Nations
Florida
Intermediate
Municipal
Bond Fund $ 25,169.00 $ 62,242.00 $ 0.00
Nations
Georgia
Intermediate
Municipal
Bond Fund $ 33,891.00 $ 64,182.00 $ 0.00
Nations
Maryland
Intermediate
Municipal $ 59,770.00 $ 93,011.00 $ 0.00
Bond Fund
Nations
North
Carolina $ 17,326.00 $47,071.00 $ 0.00
Intermediate
Municipal
Bond Fund
Nations
South Carolina
Intermediate $ 42,310.00 $ 75,330.00 $ 0.00
Municipal
Bond Fund
Nations
Tennessee
$ 0.00 $ 31,491.00 $ 1,332.00
Intermediate
Municipal
Bond Fund
Nations Texas
Intermediate
Municipal $ 11,045.00 $ 41,063.00 $ 0.00
Bond Fund
Nations
Virginia
Intermediate $ 196,295.00 $ 215,292.00 $ 0.00
Municipal
Bond Fund
Nations
Florida $ 34,641.00 $ 44,125.00 $ 0.00
Municipal
Bond Fund
Nations
Georgia $ 4,774.00 $ 25,162.00 $ 0.00
Municipal
Bond Fund
Nations
Maryland $ 108.00 $ 27,352.00 $ 0.00
Municipal
Bond Fund
Nations North
Carolina
Municipal $ 24,232.00 $ 38,851.00 $ 0.00
Bond Fund
Nations South
Carolina
Municipal
81
<PAGE>
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
Bond Funds $ 5,358.00 $ 27,497.00 1,498
Nations
Tennessee 0 $ 15,588.00 $ 5,817.00
Municipal
Bond Fund
Nations Texas
Municipal $ 6,913.00 $ 28,200.00 $ 0.00
Bond Fund
Nations
Virginia $ 11,162.00 $ 29,711.00 $ 0.00
Municipal
Bond Fund
</TABLE>
The table below states the net sub-advisory fees paid to Tradestreet,
the sub-advisory fees waived and expense reimbursements where applicable for the
fiscal period from January 1, 1996 to March 31, 1996.
ADVISORY FEES
<TABLE>
<CAPTION>
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
<S> <C> <C> <C>
Nations
Government $65,559.22 $ 0.00 $ 0.00
Money
Market Fund
Nations Tax
Exempt
Fund $ 195,836.30 $ 0.00 $ 0.00
Nations $ 702,508.52 $ 0.00 $ 0.00
Value Fund
Nations
Capital
Growth Fund $ 558,981.57 $ 0.00 $ 0.00
Nations
Disciplined
Equity Fund $ 185,311.87 $ 0.00 $ 0.00
Nations
Equity
Index Fund $ 41,306.62 $ 0.00 $ 0.00
Nations
Emerging
Growth Fund $ 194,888.10 $ 0.00 $ 0.00
Nations
Balanced
Assets Fund $146,994.87 $ 0.00 $ 0.00
Nations
Short-Inter-
mediate $ 185,611.41 $ 0.00 $ 0.00
Gov't Fund
Nations
Short-Term
Income Fund $73,671.51 $ 0.00 $ 0.00
Nations
Diversified
Income Fund $ 63,997.63 $ 0.00 $ 0.00
Nations
Strategic
Fixed $ 313,681.03 $ 0.00 $ 0.00
Income Fund
Nations
Municipal
Income Fund $20,092.35 $ 0.00 $ 0.00
Nations
Short-Term
Municipal
Income
Fund $ 11,904.57 $ 0.00 $ 0.00
Nations
Intermediate
Municipal $14,212.28 $ 0.00 $ 0.00
Bond Fund
Nations
Florida
Intermediate
Municipal
Bond Fund $9,158.98 $ 0.00 $ 0.00
Nations
Georgia
Intermediate
Municipal
Bond Fund $10,161.88 $ 0.00 $ 0.00
Nations
Maryland
Intermediate
Municipal $ 15,999.36 $ 0.00 $ 0.00
Bond Fund
Nations
North
Carolina $ 6,729.45 $ 0.00 $ 0.00
Intermediate
Municipal
Bond Fund
Nations
South Carolina
Intermediate
Municipal
82
<PAGE>
Net Amt. Amount Reimbsd.
Paid Waived by Advsr.
$ 12,199.38 $ 0.00 $ 0.00
Bond Fund
Nations
Tennessee
$ 3,812.00 $ 0.00 $ 1,332.00
Intermediate
Municipal
Bond Fund
Nations Texas
Intermediate
Municipal $ 5,474.20 $ 0.00 $ 0.00
Bond Fund
Nations
Virginia
Intermediate $42,887.69 $ 0.00 $ 0.00
Municipal
Bond Fund
Nations
Florida $ 6,891.65 $ 0.00 $ 0.00
Municipal
Bond Fund
Nations
Georgia $ 2,562.42 $ 0.00 $ 0.00
Municipal
Bond Fund
Nations
Maryland $ 2,390.88 $ 0.00 $ 0.00
Municipal
Bond Fund
Nations North
Carolina
Municipal $5,475.32 $ 0.00 $ 0.00
Bond Fund
Nations South
Carolina
Municipal $2,870.87 $ 0.00 1,498
Bond Fund
Nations
Tennessee $1,366.28 $ 0.00 $ 5,817.00
Municipal
Bond Fund
Nations Texas
Municipal $3,051.30 $ 0.00 $ 0.00
Bond Fund
Nations
Virginia $ 3,538.33 $ 0.00 $ 0.00
Municipal
Bond Fund
</TABLE>
As discussed above, NationsBank was the investment adviser to the Funds
prior to January 1, 1996. Prior to April 1, 1995, ASB Management, Inc. was
sub-investment adviser to Nations Disciplined Equity Fund. A&B Management, Inc.
received $28,916 as sub-investment advisory fees in 1995. The table below states
the net advisory fees paid to NationsBank, the advisory fees waived and expense
reimbursements where applicable for the fiscal years ended November 30, 1995,
1994 and 1993 where applicable.
ADVISORY FEES
<TABLE>
<CAPTION>
FY 1995 FY 1994 FY 1993
------- ------- --------
Net Amt. Amount Reimbsd. Net Amt. Amount Reimbsd. Net Amt. Amount Reimbsd.
Paid Waived by Advsr. Paid Waived by Advsr. Paid Waived by Advsr.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Nations
Government $ 815,364 $1,249,536 $ 0 $ 724,416 $1,235,880 $ 0 $ 797,650 $1,270,805 $0
Money
Market Fund
Nations
Tax Exempt
Fund 1,920,171 2,694,691 0 874,309 2,912,954 0 398,071 2,427,800
76,707
Nations 7,206,029 25,350 0 6,534,662 53,149 0 3,817,988 0
Value Fund 0
Nations
Capital
Growth 6,269,137 0 0 5,381,628 0 0 4,753,787 582,109 0
Fun
Nations
Disciplined
Equity 370,769 610 0 8,160 0 0 N/A N/A N/A
Fund
Nations
Equity
Index 122,169 523,117 0 102,464 433,345 0 N/A N/A N/A
Fund
Nations
Emerging
83
<PAGE>
FY 1995 FY 1994 FY 1993
------- ------- --------
Net Amt. Amount Reimbsd. Net Amt. Amount Reimbsd. Net Amt. Amount Reimbsd.
Paid Waived by Advsr. Paid Waived by Advsr. Paid Waived by Advsr.
Growth 1,855,452 3,328 0 1,288,934 0 0 540,729 201,217
Fund 0
Nations
Balanced
Assets 1,624,854 0 0 1,805,446 0 0 1,155,563 103,411
Fund 0
Nations
Short-Inter-
mediate 2,044,261 1,022,131 0 2,556,715 1,278,358 0 2,276,577 1,435,110
Gov't Fund 0
Nations
Short-Term
Income 564,197 564,197 0 696,393 730,564 34,171 444,309 969,336
Fund 0
Nations
Diversified
Income 573,462 114,692 0 329,285 170,640 0 129,313 133,926 38,638
Fund
Nations
Strategic
Fixed 3,156,062 631,213 0 2,902,823 427,781 0 2,442,399 872,384
Income Fund 0
Nations
Municipal
Income 383,148 269,813 0 398,300 279,021 66,736 358,056 358,057 18,303
Fund
Nations
Short-Term
Municipal
Income
Fund 40,165 255,162 0 42,559 167,405 362 0 4,870 910
Nations
Intermediate
Municipal 99,722 241,595 0 (8,684) 151,227 40,762 0 47,909 8,883
Bond
Fund
Nations
Florida
Intermediate
Municipal
Bond Fund 137,002 113,704 0 154,249 102,832 0 50,562 82,656 11,860
Nations
Georgia
Intermediate
Municipal
Bond Fund 158,113 126,861 0 166,565 111,043 0 92,237 122,527 7,479
Nations
Maryland
Intermediate
Municipal 245,189 191,375 0 287,326 191,550 0 248,121 175,736 18,430
Bond Fund
Nations
North
Carolina 94,414 86,937 0 73,680 61,099 17,968 36,957 68,549 19,755
Intermediate
Municipal
Bond Fund
Nations
South
Carolina 229,204 143,374 0 271,482 180,988 0 160,676 219,611 0
Intermediate
Municipal
Bond Fund
Nations
Tennessee
29,713 54,285 0 27,480 35,606 25,930 4,900 51,124 22,182
Intermediate
Municipal
Bond Fund
Nations
Texas
76,262 67,309 0 99,658 70,684 6,366 33,746 55,354 10,099
Intermediate
Municipal
Bond Fund
Nations
Virginia
831,878 439,488 0 1,138,587 346,587 0 1,122,086 280,479 35,120
Intermediate
Municipal
Bond Fund
Nations
Florida 31,520 168,010 0 (3,925) 127,352 6,635 5,672 5,672 2,796
Municipal
Bond Fund
Nations
Georgia 0 73,427 2,470 (57,827) 111,043 0 2,610 2,610 1,738
Municipal
Bond Fund
Nations
Maryland 0 56,020 15,327 (12,208) 23,155 12,701 1,628 1,628 1,009
Municipal
Bond Fund
Nations
North
Carolina 19,600 157,625 0 (6,440) 126,235 9,504 5,912 5,912 2,546
Municipal
Bond Fund
Nations
South
Carolina 0 75,568 1,498 (14,381) 44,830 15,335 2,167 2,167 1,617
Municipal
Bond Funds
Nations
Tennessee 0 40,270 12,792 (10,922) 26,558 13,336 1,736 1,736 1,412
Municipal
Bond Fund
Nations
Texas 1,425 91,303 0 (13,243) 70,358 14,740 3,181 3,181 1,860
Municipal
Bond Fund
Nations
Virginia 3,726 101,277 0 (9,176) 71,728 10,702 3,466 3,466 1,387
Municipal
Bond Fund
</TABLE>
84
<PAGE>
INVESTMENT STYLES
The Adviser uses various investment strategies during the process of
constructing and managing the Nations Fund Trust portfolios. These strategies
have been categorized into investment styles which consist of (i) the
NationsBank Fixed Income Style, (ii) the NationsBank Growth Equity Style, (iii)
the NationsBank Value Equity Style and (iv) the NationsBank Balanced Assets
Style. Investment Styles described below relate to the Diversified Income,
Government Securities, Short-Intermediate Government, Short-Term Income,
Strategic Fixed Income, Intermediate Municipal Bond, Municipal Income,
Short-Term Municipal Income, Capital Growth, Emerging Growth, Value and Balanced
Assets Funds and the State Intermediate Municipal Bond Funds and the State
Municipal Bond Funds.
NationsBank Fixed Income Style. The Nations Diversified Income,
Government Securities, Short-Intermediate Government, Short-Term Income,
Strategic Fixed Income, Intermediate Municipal Bond, Municipal Income, Florida
Intermediate Municipal Bond, Georgia Intermediate Municipal Bond, Maryland
Intermediate Municipal Bond, North Carolina Intermediate Municipal Bond, South
Carolina Intermediate Municipal Bond, Tennessee Intermediate Municipal Bond,
Texas Intermediate Municipal Bond, Virginia Intermediate Municipal Bond Fund,
Short-Term Municipal Income Fund and the State Municipal Bond Funds are managed
by the Adviser using the NationsBank Fixed Income Style. The NationsBank Fixed
Income Style investment philosophy is premised on the belief that a well
diversified portfolio of fixed income securities that emphasizes a combination
of investments strategies will capture relative value in the bond market.
In order to pursue this goal, the Fixed Income Style includes certain
biases. The Adviser reduces the risk by investing in many different issuers.
This is done by setting a maximum percentage permitted of any single issuer in
any portfolio. Focus on high credit quality is the second bias. Holdings are
concentrated in the upper end of the quality spectrum. Securities of less than
the highest quality are used only when the team of credit analysts support the
conclusion that the quality will remain stable or improve, and that it offers
attractive potential in expected return. The third bias is to de-emphasize
interest rate forecasts. The performance of a portfolio therefore is not held
hostage to the accuracy of a rate forecast.
This philosophy attempts to achieve consistent results while minimizing
risk. Five strategies are also utilized by the Fixed Income Style Group
Portfolio Managers to meet this objective.
Sector Spread Anomalies: When sectors of the bond market are over or
under valued, the allocation in the portfolios is adjusted accordingly. Such
decisions are made based on a sound analysis of historical bond values as well
as a review of current market conditions and its impact on future values.
Yield Curve Anomalies: Unusual shapes in the yield curve or the degree
of steepness in the yield curve provide opportunities to outperform fixed income
indices. Such opportunities are reviewed by our specialists for return
enhancement under a variety of possible interest rate shifts before they are
implemented.
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Coupon/Quality Opportunities: High or low coupon securities may
represent investment value based on supply and demand conditions for bonds.
There are also times when upgrading or downgrading of the credit quality of a
bond can enhance a portfolio's return. Funds hold lower quality bonds only when
the expected reward is substantial compared to the potential risks, and credit
analysis supports the conclusion that the credit quality is stable or improving.
Security Analysis: A full staff of credit analysts is dedicated to
supporting fixed income credit decisions. This staff gains additional support
from a substantial equity research team when analyzing bonds from corporate
issuers.
Duration Management: The duration (price volatility of a bond in
relation to interest rate movements) of the portfolios may be altered by 10%
shorter or longer than the portfolios normal benchmark. Changes in duration are
made infrequently and only when they are supported by economic expectations and
an assessment of value.
A final portfolio consists of securities that have been selected by the
Fixed Income Style Group Portfolio Managers, in-house industry specialists and
expert Wall Street sources all working together.
NationsBank Growth Equity Style. The Capital Growth and Emerging Growth
Funds are managed by the Adviser using the NationsBank Growth Equity style. The
NationsBank Growth Equity Style investment philosophy seeks companies with
superior growth prospects selling at reasonable prices that, over time, should
outperform the market.
Emphasis is placed on a "value adjusted for growth" stock selection
process. Essential to this style is the Adviser's belief that absolute valuation
does not capture the powerful effects of inflation. Therefore, relative
price/earnings ranges of stocks going back 5 years are examined rather than
static absolute price/earnings ratio.
Inflation causes the market price/earnings ratio of a stock to expand
or contract. Investors are willing to pay a higher price for stock in a company
in periods of low inflation. The inverse is also true. The premium paid for
growth will increase as inflation declines and decreases as inflation rises.
The stock selection process begins with a universe of financially
strong companies. The selection process selects companies with a market
capitalization greater than $500 million (large, established companies) and a
strong price momentum (growth in share price over the last 18 months). This
results in a universe of approximately 750 companies.
These 750 companies are the universe from which the Adviser's industry
specialists make their final decision for inclusion in an investment portfolio.
In accordance with the Growth Equity Style, portfolio managers focus on those
stocks among the universe with the lowest price/earnings ratio and are in
industries with above average earnings growth potential. The final portfolio of
stocks is then constructed by our Growth Equity Group Senior Portfolio Managers
who work closely with the in-house industry specialists, as well as expert Wall
Street sources.
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In summary, the Growth Equity Style seeks to produce a diverse
portfolio of large capitalization growth stocks, that over time, should
outperform the market.
NationsBank Value Equity Style. The Value Fund is managed by the
Adviser using the NationsBank Value Equity Style. The Value Equity Style
investment philosophy is premised on the belief that a well diversified
portfolio of undervalued companies exhibiting low price/earnings ratios will
over time outperform the market while incurring lower than market risk.
This style utilizes a "bottom-up" approach to stock selection, focusing
on well proven factors of fundamental valuation. A low price/earnings ratio and
above market dividend yield are two of the biases which reduce market risk. A
catalyst for earnings improvement is also one of this Style's requirements as it
assists with the "timing" of the purchase of a particular company.
Stock selection process begins with a team of 10 in-house research
specialists aided by a computerized screening model. Starting with approximately
a 2,000 company universe, stocks must first pass a rigorous screening process
that selects only those companies that possess strong financial quality and a
market capitalization greater than $500 million. This results in a universe of
approximately 900 companies, representing all of the 54 major U.S. industries
and approximately 10 economic sectors.
A more sophisticated screening process is then applied to the 900
company universe. The companies are then ranked based on the following factor
weightings:
The top one-third, or approximately 300 companies, result in the final
universe from which the industry specialists make initial selections for a Fund.
To insure adherence to the discipline, price objectives (buy and sell prices)
are set for each company purchased, based on sound fundamental analysis. A final
diversified portfolio of approximately 65 issues is constructed by the Value
Equity Style Group Senior Portfolio Managers working closely with in-house
industry specialists, as well as expert Wall Street sources.
In summary, the low price/earnings ratio, value discipline seeks to
produce a well diversified portfolio of high quality companies, that over time,
should outperform the market, thereby adding value while incurring below-market
risk.
NationsBank Balanced Asset Style. The Nations Balanced Assets Fund is
managed by the Adviser using the NationsBank Balanced Assets Style. The
NationsBank Balanced Asset Style investment philosophy is premised on the belief
that a diversified portfolio of stocks, fixed income, and money market
securities will provide total investment return through a combination of growth
of capital and current income consistent with preservation of capital.
In order to pursue this goal, the Balanced Asset Style utilizes an
asset allocation approach. Asset allocation is a process of allocating a
portfolio's market value among major asset classes (equities, fixed income, and
cash equivalents). Different asset classes have unique return and risk
characteristics. The principle behind asset allocations is that a diversified
portfolio of equities, fixed income, and cash equivalents with different
return/risk characteristics will reduce overall portfolio risk in both up and
down markets.
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The asset allocation process begins by making projections for stock,
bond and cash returns and risk profiles. A computer data analysis identifies the
highest expected return and measures it against the minimum return requirements
for the balanced strategy. Recommendations are made to an Investment Policy
Committee who reviews and approves asset class allocations.
The stock, bond and asset allocation recommendations are then passed
onto the Balanced Asset Group Senior Portfolio Managers who make the final
investment decisions. The Portfolio Managers have the ability to change the
portfolio's holdings to take advantage of changing market conditions, while
seeking an optimal balance of income, stability, and growth. Most stock
investments will be made in companies with above average earnings and dividend
prospects and overall financial market stability. All bond purchases will be
investment grade or above. Cash instruments will provide liquidity.
In summary, the Balanced Asset Style should provide total investment
return through a combination of growth of capital and current income consistent
with preservation of capital.
NationsBank Disciplined Equity Style. The Nations Disciplined Equity
Fund is managed by the Adviser using the NationsBank Disciplined Equity Style.
The NationsBank Disciplined Equity Style investment philosophy seeks to identify
companies which offer future near-term earnings momentum.
The Adviser pursues this investment philosophy through the use of a
proprietary computerized tracking system (the "Alpha Model") which monitors the
earnings per share estimates of approximately 3,000 Wall Street analysts, and
through conventional security analysis. In utilizing the computerized tracking
system, the Adviser identifies companies with respect to which there has been a
change in the consensus analyst estimate of earnings per share. The Adviser
believes that such a change often signifies the beginning of a trend for the
company, rather than an isolated occurrence, and that such trend ultimately will
be reflected in the share price of the company. The Adviser then buys or sells
stocks for the Fund based on the results of this analysis.
In selecting stocks pursuant to the NationsBank Disciplined Equity
Style, the Adviser also uses conventional security analysis techniques. Starting
with a universe of approximately 2,000 companies with large market
capitalizations, the Adviser eliminates stocks that have relatively low trading
activity, as well as stocks of companies of poor credit quality and those which,
in the opinion of the Adviser, are overpriced. From the available pool of stocks
that meet all of the criteria, approximately 40 to 50 are selected for inclusion
in the Fund's portfolio.
The Adviser strives to keep the assets of the Fund fully invested at
all times, except as required to meet expected liquidity needs.
ADMINISTRATOR AND CO-ADMINISTRATOR
Effective September 1, 1993 (the "Transition Date"), Stephens Inc. (the
"Administrator") began serving as administrator of the Trust and The Shareholder
Services, Inc. (formerly The Boston Company Advisors, Inc.), began serving as
the co-administrator of the Trust (the "Co-
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Administrator"). From February 19, 1992 to the Transition Date, The Boston
Company Advisors, Inc. served as the sole administrator of the Trust. Prior to
February 19, 1992, The Boston Company Advisors, Inc. and Provident Financial
Processing Corporation served as co-administrators for the Trust.
The Administrator and Co-Administrator serve under an administration
agreement ("Administration Agreement") and co-administration agreement
("Co-Administration Agreement"), respectively, each of which was approved by the
Board of Trustees on August 4, 1993. The Administrator receives, as compensation
for its services rendered under the Administration Agreement and as agent for
the Co-Administrator for the services it provides under the Co-Administration
Agreement, an administrative fee, computed daily and paid monthly, at the annual
rate of 0.10% of the average daily net assets of each Fund.
Pursuant to the Administration Agreement, the Administrator 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 the Trust, (iii) furnish corporate
secretarial services to the Trust, including coordinating the preparation and
distribution of materials for Board of Trustees meetings, (iv) coordinate the
provision of legal advice to the Trust with respect to regulatory matters, (v)
coordinate the preparation of reports to the Trust's shareholders and the SEC,
including annual and semi-annual reports, (vi) coordinate the provision of
services to the Trust by the Co-Administrator, the Transfer Agents and the
Custodian, and (vii) generally assist in all aspects of the Trust's operations.
Additionally, the Administrator is authorized to receive, as agent for the
Co-Administrator, the fees payable to the Co-Administrator by the Trust 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 Funds, (ii) compute each Fund's net asset value and net income, (iii)
accumulate information required for the Trust's reports to shareholders and the
SEC, (iv) prepare and file the Trust's federal and state tax returns, (v)
perform monthly compliance testing for the Trust, and (vi) prepare and furnish
the Trust monthly broker security transaction summaries and transaction listings
and performance information. The Co-Administrator bears all expenses incurred in
connection with the performance of its services.
The Administration Agreement and the Co-Administration Agreement may be
terminated by a vote of a majority of the Board of Trustees, or by the
Administrator or Co-Administrator, respectively, on 60 days' written notice
without penalty. The Administration Agreement and Co-Administration Agreement
are not assignable without the written consent of the other party. Furthermore,
the Administration Agreement and the Co-Administration Agreement provide that
the Administrator and Co-Administrator, respectively, shall not be liable to the
Funds or to their shareholders except in the case of the Administrator's or
Co-Administrator's, respectively, willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
The table set forth on the following page states the net administration
fees paid and the administration fees waived for the fiscal period ended March
31, 1996 (where applicable).
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The table set forth on the following page states the net administration
fees paid and the administration fees waived for the fiscal period ended March
31, 1996 (where applicable).
ADMINISTRATION FEES
<TABLE>
<CAPTION>
NET FEES FEES
PAID WAIVED
<S> <C> <C>
Nations Government Money Market Fund $139,341.00 $19,949.00
Nations Tax Exempt Fund 409,257.00 $62,641.00
Nations Value Fund 374,444.00 0.00
Nations Capital Growth Fund 300,466.00 0.00
Nations Emerging Growth Fund 103,626.00 0.00
Nations Disciplined Equity Fund 45,211.00 0.00
Nations Equity Index Fund 53,838.00 0.00
Nations Balanced Assets Fund 78,711.00 0.00
Nations Short-Intermediate
Government Fund 167,287.00 0.00
Nations Short-Term Income Fund 65,025.00 0.00
Nations Diversified Income Fund 57,340.00 0.00
Nations Strategic Fixed Income Fund 280,486.00 0.00
Nations Municipal Income Fund 38,622.00 0.00
Nations Short-Term Municipal
Income Fund 22,543.00 0.00
Nations Intermediate Municipal
Bond Fund 26,938.00 0.00
Nations Florida Intermediate
Municipal Bond Fund 17,482.00 0.00
Nations Georgia Intermediate
Municipal Bond Fund 19,615.00 0.00
Nations Maryland Intermediate
Municipal Bond Fund 30,556.00 0.00
Nations North Carolina
Intermediate Municipal Bond
Fund 12,879.00 0.00
Nations South Carolina
Intermediate Municipal Bond Fund 23,528.00 0.00
Nations Tennessee Intermediate
Municipal Bond Fund 6,298.00 0.00
Nations Texas Intermediate
Municipal Bond Fund 10,422.00 0.00
Nations Virginia Intermediate
Municipal Bond Fund 82,317.00 0.00
Nations Florida Municipal
Bond Fund 13,127.00 0.00
Nations Georgia Municipal
Bond Fund 4,989.00 0.00
Nations Maryland Municipal
Bond Fund 4,576.00 0.00
Nations North Carolina Municipal
Bond Fund 10,514.00 0.00
Nations South Carolina Municipal
Bond Fund 5,476.00 0.00
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Nations Tennessee Municipal
Bond Fund 4,816 0.00
Nations Texas Municipal Bond
Fund 11,093 0.00
Nations Virginia Municipal
Bond Fund 12,592 0.00
</TABLE>
<TABLE>
<CAPTION>
ADMINISTRATION FEES
FY 1995 FY 1994 FY 1993
---------------------- ----------------------- --------------
NET FEES FEES NET FEES FEES NET FEES FEES
PAID WAIVED PAID WAIVED PAID WAIVED
<S> <C> <C> <C> <C> <C> <C>
Nations Government Money Market Fund $368,833 $139,379 $119,102 $70,972 $467,652 $ 49,462
Nations Tax Exempt Fund 791,074 347,743 864,933 81,883 640,529 65,939
Nations Value Fund 951,938 0 866,305 12,070 462,457 46,608
Nations Capital Growth Fund 825,136 0 664,272 53,278 643,393 68,060
Nations Emerging Growth Fund 244,941 0 159,098 12,760 89,840 9,086
Nations Disciplined Equity Fund 53,136 0 5,026 414 N/A N/A
Nations Equity Index Fund 127,288 0 94,857 12,305 N/A N/A
Nations Balanced Assets Fund 213,630 0 222,852 17,874 152,127 15,736
Nations Short-Intermediate
Government Fund 503,568 0 591,720 47,459 560,032 58,583
Nations Short-Term Income Fund 185,278 0 225,440 18,081 212,247 23,361
Nations Diversified Income Fund 80,883 0 77,134 6,187 39,864 4,009
Nations Strategic Fixed Income Fund 623,321 0 513,885 411,216 498,279 54,185
Nations Municipal Income Fund 79,205 28,128 114,802 9,208 108,157 11,195
Nations Short-Term Municipal
Income Fund 41,135 17,261 26,208 15,857 0 974
Nations Intermediate Municipal
Bond Fund 48,857 18,605 14,603 22,058 7,488 497
Nations Florida Intermediate
Municipal Bond Fund 36,717 12,708 47,598 3,818 24,253 2,391
Nations Georgia Intermediate
Municipal Bond Fund 41,646 14,573 51,400 4,122 38,930 4,023
Nations Maryland Intermediate
Municipal Bond Fund 63,726 22,366 88,663 7,112 76,764 8,007
Nations North Carolina
Intermediate Municipal Bond
Fund 26,465 9,257 28,281 2,268 19,146 1,955
Nations South Carolina
Intermediate Municipal Bond Fund 70,495 2,931 83,775 6,719 6,719 7,183
Nations Tennessee Intermediate
Municipal Bond Fund 12,193 4,383 16,481 1,322 10,279 926
Nations Texas Intermediate
Municipal Bond Fund 20,979 7,337 32,717 2,624 16,266 1,554
Nations Virginia Intermediate
Municipal Bond Fund 240,312 10,264 275,016 22,058 254,140 26,373
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Nations Florida Municipal
Bond Fund 23,746 9,126 14,712 9,995 0 945
Nations Georgia Municipal
Bond Fund 8,688 3,408 4,780 4,089 0 435
Nations Maryland Municipal
Bond Fund 6,434 2,815 2,124 1,817 0 271
Nations North Carolina Municipal
Bond Fund 21,537 7,614 13,262 8,288 0 985
Nations South Carolina Municipal
Bond Fund 8,881 3,573 4,113 3,518 0 361
Nations Tennessee Municipal
Bond Fund 4,816 1,812 3,001 1,828 0 289
Nations Texas Municipal Bond
Fund 11,093 4,168 6,454 5,522 0 530
Nations Virginia Municipal
Bond Fund 12,592 4,700 6,580 5,629 0 578
</TABLE>
As discussed under the caption "Expenses," the Administrator will be
required to reduce its fee from the Trust, in direct proportion to the fees
payable to the Adviser and the Administrator by the Trust, if the expenses of
the Trust exceed the applicable expense limitation of any state in which the
Funds' shares are registered or qualified for sale.
CUSTODIAN AND TRANSFER AGENT
NationsBank of Texas, N.A., serves as custodian for the fund securities
and cash of each Fund. As custodian, NationsBank of Texas, N.A., maintains
custody of such Funds' securities, cash and other property, delivers securities
against payment upon sale and pays for securities against delivery upon
purchase, makes payments on behalf of such Funds for payments of dividends,
distributions and redemptions, endorses and collects on behalf of such Funds all
checks, and receives all dividends and other distributions made on securities
owned by such Funds. For such services, NationsBank of Texas, N.A., is entitled
to receive, in addition to out-of-pocket expenses, fees, payable monthly (i) at
the rate of 1.25% of 1% of the amortized cost value of the Money Market Funds'
investments and the average daily net assets of each Non-Money Market Fund, (ii)
$10.00 per repurchase collateral transaction by each Fund, and (iii) $15.00 per
purchase, sale and maturity transaction involving each Fund. NationsBank of
Texas, N.A. is a wholly owned subsidiary of NationsBank Corp.
First Data Investor Services Group, Inc. ("First Data"), formerly The
Shareholder Services Group, Inc., a wholly owned subsidiary of First Data
Corporation, which is located at One Exchange Place, Boston, Massachusetts
02109, acts as transfer agent for the Trust's Shares. Under the transfer agency
agreements, the transfer agent maintains the shareholder account records for the
Trust, handles certain communications between shareholders and the Trust, and
distributes dividends and distributions payable by the Trust to shareholders,
and produces
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statements with respect to account activity for the Trust and its shareholders
for these services. The transfer agent receives a monthly fee computed on the
basis of the number of shareholder accounts that it maintains for the Trust
during the month and is reimbursed for out-of-pocket expenses. NationsBank of
Texas, N.A., 901 Main Street, Dallas, Texas 75201, serves as sub-transfer agent
for each Fund's Primary A and Primary B Shares.
SHAREHOLDER SERVICING AGREEMENTS (PRIMARY B SHARES ONLY)
As stated in the Prospectuses for the Primary Shares, the Trust has a
Shareholder Servicing Plan with respect to the Primary B Shares for each of the
Funds except the Value Fund, Capital Growth Fund, Emerging Growth Fund,
Disciplined Equity Fund, Equity Index Fund, Balanced Assets Fund,
Short-Intermediate Government Fund, Short-Term Income Fund, Diversified Income
Fund and Strategic Fixed Income Fund. Pursuant to the Shareholder Servicing
Plan, the Trust has entered into agreements with certain banks pertaining to the
provision of administrative services to their customers who may from time to
time own of record or beneficially Primary B Shares ("Customers") in
consideration for the payment of up to 0.25% (on an annualized basis) of the
average daily net asset value of such shares. Such services may include: (i)
aggregating and processing purchase, exchange and redemption requests for 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 shares pursuant to specific or
pre-authorized instructions; (iii) processing dividend and distribution payments
from the Funds on behalf of Customers; (iv) providing information periodically
to Customers including information showing their position in shares; (v)
responding to Customer inquiries concerning their investment in shares; (vi)
providing sub-accounting with respect to shares beneficially owned by Customers
or the information necessary for sub-accounting; (vii) 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; (viii) forwarding to Customers proxy statements and
proxies containing any proposals regarding the Shareholder Servicing Agreements
or Shareholder Services Plan; (ix) arranging for bank wires; (x) providing
general shareholder liaison services; and (xi) providing such other similar
services as may reasonably be requested to the extent permitted under applicable
statutes, rules or regulations.
SHAREHOLDER ADMINISTRATION PLAN (PRIMARY B SHARES ONLY)
As stated in the Prospectus describing the Primary B Shares of the Value
Fund, Capital Growth Fund, Emerging Growth Fund, Disciplined Equity Fund, Equity
Index Fund, Balanced Assets Fund, Short-Intermediate Government Fund, Short-Term
Income Fund, Diversified Income Fund and Strategic Fixed Income Fund, the Trust
has a separate Shareholder Administration Plan (the "Administration Plan") with
respect to such shares. Pursuant to the Administration Plan, the Trust 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 Non-Money
Market Fund 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
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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 Trust 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 NASD Service Plan Rule, exceed 0.25% of the average daily net
asset value of the Primary B Shares of the relevant Funds. 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 Fund 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 Trustees, including a majority of the Qualified Trustees, specifically
approves the plan at least annually.
DISTRIBUTION PLANS AND SHAREHOLDER SERVICING ARRANGEMENTS FOR INVESTOR SHARES
Previous Plans. Prior to September 28, 1992, the Investor A Shares of
the Government Money Market Fund, Tax Exempt Fund, Value Fund,
Short-Intermediate Government Fund, Municipal Income Fund, Georgia Intermediate
Municipal Bond Fund, Maryland Intermediate Municipal Bond Fund, South Carolina
Intermediate Municipal Bond Fund and Virginia Intermediate Municipal Bond Fund,
were subject to a Shareholder Servicing Plan substantially similar to the plan
described above. The Shareholder Servicing Plan was terminated on September 27,
1992 with regard to each such Fund.
Under a superseded shareholder servicing plan which related only to
certain non-fiduciary shares in the Tax Exempt Fund, Sovran received certain
fees. For the fiscal years ended November 30, 1990, and 1989, the Trust paid
Sovran (after waivers) $204,919, and $176,411, respectively, for services
provided by Sovran pursuant to that terminated plan.
Investor A Shares. The Trust has adopted a revised Amended and Restated
Shareholder Servicing and Distribution Plan (the "Investor A Plan") pursuant to
Rule 12b-1 under the 1940 Act with respect to the Investor A Shares of the
Funds. The Investor A Plan provides that each
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Fund 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 Nations Fund Trust ("Servicing Agents"), up to 0.10%
(on an annualized basis) of the average daily net asset value of Investor A
Shares of the Money Market Funds and up to 0.25% (on an annualized basis) of the
average daily net asset value of the Non-Money Market Funds.
Such payments may be made to (i) 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 (ii) Selling Agents that have
entered into a Sales Support Agreement with the Distributor for providing sales
support assistance in connection with the sale of Investor A Shares. The sales
support assistance provided by a Selling Agent under a Sales Support Agreement
may include forwarding sales literature and advertising provided by Nations Fund
Trust or the Distributor to their customers and providing such other sales
support assistance as may be requested by the Distributor from time to time.
Currently, substantially all fees paid by the Money Market Funds pursuant to the
Investor A Plan are paid to compensate Selling Agents for providing sales
support services, with any remaining amounts being used by the Distributor to
partially defray other expenses incurred by the Distributor in distributing
Investor A Shares.
Payments under the Investor A Plan by each Non-Money Market Fund
(except the Short-Term Income Fund and the Short-Term Municipal Income Fund)
also may be made to Servicing Agents that have entered into a Shareholder
Servicing Agreement with Nations Fund Trust for providing shareholder support
services to their Customers which hold of record or beneficially Investor A
Shares of a Non-Money Market Fund. Such shareholder support services provided by
Servicing Agents to holders of Investor A Shares of such Funds 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 our 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 Nations Fund Trust 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 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 to us necessary for
subaccounting; (viii) if required by law, forwarding shareholder communications
from Nations Fund Trust (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 Nations Fund Trust may reasonably request to the extent the
Selling Agent is permitted to do so under applicable statutes, rules or
regulations. The Money Market Funds, the Short-Term Income Fund and the
Short-Term Municipal Income Fund may not pay for personal services
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<PAGE>
and/or the maintenance of shareholder accounts, as such terms are interpreted by
the NASD, under the Investor A Plan.
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 Fund would not be contractually obligated to pay the
Distributor for any expenses not previously reimbursed by the Fund. Fees
received by the Distributor pursuant to the Investor A 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.
In addition, the Trust has adopted an Amended and Restated Shareholder
Servicing Plan for the Investor A Shares of the Money Market Funds, the
Short-Term Income Fund and the Short-Term Municipal Income Fund (the "Investor A
Servicing Plan"). Pursuant to the Investor A Servicing Plan, each such Fund may
pay banks, broker/dealers or other financial institutions that have entered into
a Shareholder Servicing Agreement with the Trust ("Servicing Agents") up to
0.25% (on an annualized basis) of the average daily net asset value of the
Investor A Shares of each Fund for providing shareholder support services. Such
shareholder support services provided by Servicing Agents may include those
shareholder support services discussed above with respect to the Investor A
Plan. Fees paid pursuant to the Investor A Servicing Plan are calculated daily
and paid monthly.
During the fiscal year ended March 31, 1996, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor A Shares: $265,899 and $13, respectively. Of these amounts, the
Distributor retained $0 and $0, respectively, and paid the balance to selling
dealers.
Investor C Shares of the Non-Money Market Funds and Investor B Shares
of the Money Market Funds. As stated in the Prospectuses, the Trustees of the
Trust have approved an Amended and Restated Distribution Plan (the "Investor C/B
Plan") in accordance with Rule 12b-1 under the 1940 Act for the Investor C
Shares of the Non-Money Market Funds and Investor B Shares of Money Market
Funds. Pursuant to the Investor C/B Plan, a Fund may pay the Distributor for
certain expenses that are incurred in connection with sales support services.
Payments under the Investor C/B Plan will be calculated daily and paid monthly
at a rate set from time to time by the Board of Trustees provided that the
annual rate may not exceed 0.75% of the average daily net asset value of
Investor C Shares of a Non-Money Market Fund and 0.10% of the average daily net
asset value of Investor B Shares of a Money Market Fund. Payments to the
Distributor pursuant to the Investor C/B Plan will be used (i) to compensate
banks, other financial institutions or a securities broker/dealer that have
entered into a Sales Support Agreement with the Distributor ("Selling Agents")
for providing sales support assistance relating to Investor Shares covered by
the Plan, (ii) for promotional activities intended to result in the sale of
Investor Shares covered by the Plan 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 Shares covered by the Plan. Currently, substantially all
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<PAGE>
fees paid pursuant to the Investor C/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 C Shares of a
Non-Money Market Fund and Investor B Shares of a Money Market Fund. Fees
received by the Distributor pursuant to the Investor C/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 C/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 C/B Shares
of a Non-Money Market Fund and Investor B Shares of a Money Market Fund. 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 Non-Money Market
Funds, and up to 0.10% of the average daily net asset value of the Investor B
Shares of the Money Market Funds 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/B Plan are accrued daily and paid monthly, and are
charged as expenses of Shares of a Fund as accrued. Expenses incurred by the
Distributor pursuant to the Investor C/B Plan in any given year may exceed the
sum of the fees received under the Investor C/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 C/B Plan is in
effect. If the Investor C/B Plan were terminated or not continued, a Fund would
not be contractually obligated to pay the Distributor for any expenses not
previously reimbursed by the Fund or recovered through contingent deferred sales
charges.
In addition, the Trustees have approved an Amended and Restated
Shareholder Servicing Plan with respect to Investor C Shares of the Non-Money
Market Funds and Investor B Shares of the Money Market Funds (the "Investor C/B
Servicing Plan"). Pursuant to its Investor C/B Servicing Plan, each Fund may pay
banks, broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Trust ("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 a Fund's Investor C/B Servicing Plan will be calculated daily and paid
monthly at a rate set from time to time by the Board of Trustees, provided that
the annual rate may not exceed 0.25% of the average daily net asset value of
each Fund's Investor C or Investor B Shares, as appropriate. The shareholder
services provided by the Servicing Agents may include (i) aggregating and
processing purchase and redemption requests for Investor Shares covered by the
Plan from Customers and transmitting promptly net purchase and redemption orders
to our distributor or transfer agent; (ii) providing Customers with a service
that invests the assets of their accounts in Investor Shares covered by the Plan
pursuant to specific or pre-authorized instructions; (iii) processing dividend
and distribution payments from the Trust on behalf of Customers; (iv) providing
information periodically to Customers showing their positions in Investor Shares
covered by the Plan; (v) arranging for bank wires; (vi) responding to Customers'
inquiries concerning their investment in Investor Shares covered by the Plan;
(vii) providing subaccounting with respect to Investor
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<PAGE>
Shares covered by the Plan beneficially owned by Customers or providing the
information to us necessary for subaccounting; (viii) if required by law,
forwarding shareholder communications from the Trust (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 Trust may reasonably request
to the extent the Servicing Agent is permitted to do so under applicable
statutes, rules or regulations.
During the fiscal year ended March 31, 1996, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor C Shares of the Non-Money Market Funds: $60,164 and $5,086,
respectively. Of these amounts, the Distributor retained $ 33,816.20 and $
5,086, respectively, and paid the balance to selling dealers.
Investor D Shares of the Money Market Funds. The Trustees have approved
a Distribution Plan (the "Investor D Distribution Plan") with respect to
Investor D Shares of the Money Market Funds. Pursuant to the Investor D
Distribution Plan, a Money Market Fund may compensate or reimburse the
Distributor for any activities or expenses primarily intended to result in the
sale of a Fund's Investor D Shares, including for sales related services
provided by banks, broker/dealers or other financial institutions that have
entered into a Sales Support Agreement relating to the Investor D Shares with
the Distributor ("Selling Agents"). Payments under a Fund's Investor D
Distribution Plan will be calculated daily and paid monthly at a rate or rates
set from time to time by the Board of Trustees provided that the annual rate may
not exceed 0.45% of the average daily net asset value of each Money Market
Fund's Investor D Shares.
The fees payable under the Investor D Distribution Plan are used
primarily to compensate or reimburse the Distributor for distribution services
provided by it, and related expenses incurred, including payments by the
Distributor to compensate or reimburse Selling Agents, for sales support
services provided, and related expenses incurred, by such Selling Agents.
Payments under the Investor D Distribution Plan may be made with respect to
preparation, printing and distribution of prospectuses, sales literature and
advertising materials by the Distributor or, as applicable, Selling Agents,
attributable to distribution or sales support activities, respectively,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of the Distributor or Selling Agents,
attributable to distribution or sales support activities, respectively; overhead
and other office expenses of the Distributor relating to the foregoing (which
may be calculated as a carrying charge in the Distributor's or Selling Agents'
unreimbursed expenses), incurred in connection with distribution or sales
support activities. The overhead and other office expenses referenced above may
include, without limitation, (i) the expenses of operating the Distributor's or
Selling Agents' offices in connection with the sale of Fund shares, including
lease costs, the salaries and employee benefit costs of administrative,
operations and support personnel, utility costs, communication costs and the
costs of stationery and supplies, (ii) the costs of client sales seminars and
travel related to distribution and sales support activities, and (iii) other
expenses relating to distribution and sales support activities.
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<PAGE>
In addition, the Trustees have approved a Shareholder Servicing Plan
with respect to Investor D Shares of the Money Market Funds (the "Investor D
Servicing Plan"). Pursuant to the Investor D Servicing Plan, a Fund may
compensate or reimburse banks, broker/dealers or other financial institutions
that have entered into a Shareholder Servicing Agreement with the Trust
("Servicing Agents") for certain activities or expenses of the Servicing Agents
in connection with shareholder services that are provided by the Servicing
Agents. Payments under the Investor D Servicing Plan will be calculated daily
and paid monthly at a rate or rates set from time to time by the Board of
Trustees, provided that the annual rate may not exceed 0.25% of the average
daily net asset value of the Investor D Shares of the Money Market Funds.
The fees payable under the Investor D Servicing Plan are used primarily
to compensate or reimburse Servicing Agents for shareholder services provided,
and related expenses incurred, by such Servicing Agents. The shareholder
services provided by Servicing Agents may include: (i) aggregating and
processing purchase and redemption requests for such Investor D Shares from
Customers and transmitting promptly net purchase and redemption orders to the
Distributor or Transfer Agent; (ii) providing Customers with a service that
invests the assets of their accounts in such Investor D Shares pursuant to
specific or pre-authorized instructions; (iii) processing dividend and
distribution payments from the Trust on behalf of Customers; (iv) providing
information periodically to Customers showing their positions in such Investor D
Shares; (v) arranging for bank wires; (vi) responding to Customers' inquiries
concerning their investment in such Investor D Shares; (vii) providing
sub-accounting with respect to such Investor D Shares beneficially owned by
Customers or providing the information to us necessary for sub-accounting;
(viii) if required by law, forwarding shareholder communications from the Trust
(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 Investor D Servicing Plan or related agreements; (x) providing
general shareholder liaison services; and (xi) providing such other similar
services as the Trust may reasonably request to the extent such Servicing Agent
is permitted to do so under applicable statutes, rules or regulations.
The fees payable under the Investor D Distribution Plan and Investor D
Servicing Plan (together, the "Investor D Plans") are treated by the Funds as an
expense in the year they are accrued. At any given time, a Selling Agent and/or
Servicing Agent may incur expenses in connection with services provided pursuant
to its agreements with the Distributor under the Investor D Plans which exceed
the total of (i) the payments made to the Selling Agents and Servicing Agents by
the Distributor or Nations Fund and reimbursed by the Fund pursuant to the
Investor D Plans, and (ii) the proceeds of contingent deferred sales charges
paid to the Distributor and reallowed to the Selling Agent, upon the redemption
of their Customers' Investor D Shares. Any such excess expenses may be recovered
in future years, so long as the Investor D Plans are in effect. Because there is
no requirement under the Investor D Plans that the Distributor be paid or the
Selling Agents and Servicing Agents be compensated or reimbursed for all their
expenses or any requirement that the Investor D Plans be continued from year to
year, such excess amount, if any, does not constitute a liability to a Fund or
the Distributor. Although there is no legal obligation for the Fund to pay
expenses incurred by the Distributor, a Selling Agent or a Servicing Agent in
excess of payments previously made to the Distributor under the Investor D Plans
or in
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<PAGE>
connection with contingent deferred sales charges, if for any reason the
Investor D Plans are terminated, the Trustees will consider at that time the
manner in which to treat such expenses.
During the fiscal year ended March 31, 1996, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor D Shares of the Non-Money Market Funds: $2 and $0, respectively. Of
these amounts, the Distributor retained $0 and $0, respectively, and paid the
balance to selling dealers.
Investor N Shares of the Non-Money Market Funds. As stated in the
Prospectuses for the Investor N Shares of the Non-Money Market Funds, the
Trustees have approved a Distribution Plan (the "Investor N Distribution Plan")
with respect to Investor N Shares of the Non-Money Market Funds. Pursuant to the
Investor N Distribution Plan, a Fund may compensate or reimburse the Distributor
for any activities or expenses primarily intended to result in the sale of the
Fund's Investor N Shares, including for sales related services provided by
banks, broker/dealers or other financial institutions that have entered into a
Sales Support Agreement relating to the Investor N Shares with the Distributor
("Selling Agents"). Payments under a Fund's Investor N Distribution Plan will be
calculated daily and paid monthly at a rate or rates set from time to time by
the Board of Trustees provided that the annual rate may not exceed 0.75% of the
average daily net asset value of each Non-Money Market Fund's Investor N Shares.
The fees payable under the Investor N Distribution Plan are used
primarily to compensate or reimburse the Distributor for distribution services
provided by it, and related expenses incurred, including payments by the
Distributor to compensate or reimburse Selling Agents, for sales support
services provided, and related expenses incurred, by such Selling Agents.
Payments under the Investor N Distribution Plan may be made with respect to
preparation, printing and distribution of prospectuses, sales literature and
advertising materials by the Distributor or, as applicable, Selling Agents,
attributable to distribution or sales support activities, respectively,
commissions, incentive compensation or other compensation to, and expenses of,
account executives or other employees of the Distributor or Selling Agents,
attributable to distribution or sales support activities, respectively; overhead
and other office expenses of the Distributor relating to the foregoing (which
may be calculated as a carrying charge in the Distributor's or Selling Agents'
unreimbursed expenses), incurred in connection with distribution or sales
support activities. The overhead and other office expenses referenced above may
include, without limitation, (i) the expenses of operating the Distributor's or
Selling Agents' offices in connection with the sale of Fund shares, including
lease costs, the salaries and employee benefit costs of administrative,
operations and support personnel, utility costs, communication costs and the
costs of stationery and supplies, (ii) the costs of client sales seminars and
travel related to distribution and sales support activities, and (iii) other
expenses relating to distribution and sales support activities.
In addition, the Trustees have approved a Shareholder Servicing Plan
with respect to Investor N Shares of the Non-Money Market Funds and Investor C
Shares of the Money Market Funds) the "Investor N/C Servicing Plan"). Pursuant
to its Investor N/C Servicing Plan, a Fund may compensate or reimburse banks,
broker/dealers or other financial institutions that have entered into a
Shareholder Servicing Agreement with the Trust ("Servicing Agents") for certain
activities or expenses of the Servicing Agents in connection with shareholder
services that are
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<PAGE>
provided by the Servicing Agents. Payments under a Fund's Investor N/C Servicing
Plan will be calculated daily and paid monthly at a rate or rates set from time
to time by the Board of Trustees, provided that the annual rate may not exceed
0.25% of the average daily net asset value of the Fund's Investor N or C Shares,
as appropriate.
The fees payable under the Investor N/C Servicing Plan are used
primarily to compensate or reimburse Servicing Agents for shareholder services
provided, and related expenses incurred, by such Servicing Agents. The
shareholder services provided by Servicing Agents may include: (i) aggregating
and processing purchase and redemption requests for Investor N and C Shares from
Customers and transmitting promptly net purchase and redemption orders to the
Distributor or Transfer Agent; (ii) providing Customers with a service that
invests the assets of their accounts in Investor N or C Shares pursuant to
specific or pre-authorized instructions; (iii) processing dividend and
distribution payments from the Trust on behalf of Customers; (iv) providing
information periodically to Customers showing their positions in Investor N or C
Shares; (v) arranging for bank wires; (vi) responding to Customers' inquiries
concerning their investment in Investor N or C Shares; (vii) providing
sub-accounting with respect to Investor C Shares beneficially owned by Customers
or providing the information to us necessary for sub-accounting; (viii) if
required by law, forwarding shareholder communications from the Trust (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
Investor N or C Servicing Plan or related agreements; (x) providing general
shareholder liaison services; and (xi) providing such other similar services as
the Trust may reasonably request to the extent such Servicing Agent is permitted
to do so under applicable statutes, rules or regulations.
The fees payable under the Investor C Distribution Plan and Investor
N/C Servicing Plan (together, the "Investor N/C Plans") are treated by the Funds
as an expense in the year they are accrued. At any given time, a Selling Agent
and/or Servicing Agent may incur expenses in connection with services provided
pursuant to its agreements with the Distributor under the Investor N/C Plans
which exceed the total of (i) the payments made to the Selling Agents and
Servicing Agents by the Distributor or Nations Fund and reimbursed by the Fund
pursuant to the Investor N/C Plans, and (ii) the proceeds of contingent deferred
sales charges paid to the Distributor and reallowed to the Selling Agent, upon
the redemption of their Customers' Investor N Shares. Any such excess expenses
may be recovered in future years, so long as the Investor N/C Plans are in
effect.
Because there is no requirement under the Investor N/C Plans that the
Distributor be paid or the Selling Agents and Servicing Agents be compensated or
reimbursed for all their expenses or any requirement that the Investor N/C Plans
be continued from year to year, such excess amount, if any, does not constitute
a liability to a Fund or the Distributor. Although there is no legal obligation
for the Fund to pay expenses incurred by the Distributor, a Selling Agent or a
Servicing Agent in excess of payments previously made to the Distributor under
the Investor N/C Plans or in connection with contingent deferred sales charges,
if for any reason the Investor N/C Plans are terminated, the Trustees will
consider at that time and manner in which to treat such expenses.
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<PAGE>
During the fiscal year ended March 31, 1996, the Distributor received
the following amounts from Rule 12b-1 fees and CDSC fees in connection with
Investor N Shares of the Non-Money Market Funds: $939,081 and $558,076,
respectively. Of these amounts, the Distributor retained $ 0 and $0,
respectively, and paid the balance to selling dealers.
Information Applicable to Investor A, Investor B, Investor C Shares,
Investor D and Investor N Shares. The Investor A Plan, the Investor A Servicing
Plan, the Investor C/B Plan, the Investor C/B Servicing Plan, the Investor C
Plan and the Investor N/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 Investor A Plan, the Investor A Servicing
Plan, the Investor C/B Servicing Plan and the Investor N/C Servicing Plan is
subject to, among other things, the National Association of Securities Dealers,
Inc. ("NASD") Rules of Fair Practice governing receipt by NASD members of
servicing fees from registered investment companies (the "NASD Service Fee
Rule"), which became effective on July 7, 1993. Such compensation shall only be
paid for services determined to be permissible under the NASD Service Fee Rule.
Each Plan requires the officers of the Trust to provide the Board of
Trustees 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 Trustees 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 Trustees, including a majority of the trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust and who have no
direct or indirect financial interest in the operation of the Plan or in any
agreements related to the Plan ("Qualified Trustees") on June 24, 1992, with
respect to the Investor A Shares of each Fund except the Intermediate Municipal
Bond Fund and the Tennessee Intermediate Municipal Bond Fund; on March 19, 1992
with respect to the Investor C Shares (formerly Investor B Shares) of the Value
Fund, Short-Intermediate Government Fund, Municipal Income Fund, Georgia
Intermediate Municipal Bond Fund, Maryland Intermediate Municipal Bond Fund,
South Carolina Intermediate Municipal Bond Fund and Virginia Intermediate
Municipal Bond Fund; on June 24, 1992 with respect to the Investor C Shares
(formerly Investor B Shares) of the Capital Growth Fund, Emerging Growth Fund,
Balanced Assets Fund, Short-Term Income Fund, Diversified Income Fund, Strategic
Fixed Income Fund, Florida Intermediate Municipal Bond Fund, and North Carolina
Intermediate Municipal Bond Fund and Texas Intermediate Municipal Bond Fund; on
February 3, 1993, with respect to the Investor A and Investor C Shares (formerly
Investor B Shares) of the Intermediate Municipal Bond Fund and the Tennessee
Intermediate Municipal Bond Fund; on February 3, 1993, with respect to the
Investor B Shares of the Government Money Market Fund and the Tax Exempt Fund;
and on February 3, 1993, with respect to the Investor N Shares (formerly
Investor C Shares) of each Non-Money Market Fund. On August 4, 1993, the Board
of Trustees approved the Investor N/C Servicing Plan with respect to the Money
Market Funds. On February 2, 1994, the Board of Trustees approved the Primary B
Servicing Plan, Investor A Plan, Investor C/B Plan, Investor C/B Servicing Plan,
Investor C Plan and Investor N/C Servicing Plan with respect to the Disciplined
Equity Fund.
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In approving the Plans in accordance with the requirements of Rule
12b-1, the Trustees considered various factors and determined that there is a
reasonable likelihood that each Plan will benefit the respective Investor A,
Investor B, Investor C Shares or Investor N Shares and the holders of such
shares. The Plans were approved by the Investor A Shares of the Government Money
Market Fund, Tax Exempt Fund, Value Fund, Short-Intermediate Government Fund,
Municipal Income Fund, Georgia Intermediate Municipal Bond Fund, South Carolina
Intermediate Municipal Bond Fund and Virginia Intermediate Municipal Bond Fund
on September 22, 1992. The Plans applicable to Investor A and Investor C Shares
(formerly Investor B Shares) of the Capital Growth Fund, Emerging Growth Fund,
Balanced Assets Fund, Short-Term Income Fund, Diversified Income Fund, Strategic
Fixed Income Fund, North Carolina Intermediate Municipal Bond Fund, and Florida
Intermediate Municipal Bond Fund were approved by the initial shareholders of
each such Fund's Investor A Shares and Investor C Shares and will be submitted
to each Fund's relevant shareholders for approval at a later date. The Plans
applicable to the Investor C Shares (formerly Investor B Shares) of the Value
Fund, Short-Intermediate Government Fund, Municipal Income Fund, Georgia
Intermediate Municipal Bond Fund, Maryland Intermediate Municipal Bond Fund,
South Carolina Intermediate Municipal Bond Fund and Virginia Intermediate
Municipal Bond Fund were approved by each such Fund's initial shareholder of
Investor C Shares and by each Fund's shareholders on September 22, 1992. The
Plans applicable to the Investor A Shares of the Intermediate Municipal Bond
Fund, the Texas Intermediate Municipal Bond Fund and the Tennessee Intermediate
Municipal Bond Fund were approved by such Funds' initial shareholder of Investor
A Shares. The Plans applicable to the Investor N Shares (formerly Investor C
Shares) of each Non-Money Market Fund were approved by each Fund's initial
shareholder of Investor N Shares.
All Plans shall continue in effect as long as such continuance is
specifically approved at least annually by the Board of Trustees, including a
majority of qualified Trustees. On November 6, 1993, the Board of Trustees
considered the Plans for all Funds (except the Special Equity Fund) and voted to
continue such Plans for an additional one-year period.
The Investor A Plan, the Investor C/B Plan and the Investor C Plan may
be terminated with respect to Investor A, Investor C/B or Investor C Shares by
vote of a majority of the Qualified Trustees, or by vote of a majority of the
holders of a Fund's outstanding voting securities of the Investor A, Investor
C/B or Investor C Shares. Any change in such a Plan that would increase
materially the distribution expenses paid by the Investor A, Investor B,
Investor C Shares or Investor N Shares, as appropriate, requires shareholder
approval; otherwise, each Plan may be amended by the trustees, including a
majority of the Qualified Trustees, by vote cast in person at a meeting called
for the purpose of voting upon such amendment. The Investor A Servicing Plan,
the Investor C/B Servicing Plan and the Investor N/C Servicing Plan may be
terminated by a vote of a majority of the Qualified Trustees. As long as a Plan
is in effect, the selection or nomination of the Qualified Trustees is committed
to the discretion of the Qualified Trustees.
Conflict of interest restrictions may apply to the receipt by Selling
and/or Servicing Agents of compensation from Nations Fund 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
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investment advisers and other money managers subject to the jurisdiction of the
SEC, the Department of Labor, or state securities commissions, are urged to
consult their legal advisers before investing such assets in Investor Shares.
FEES PAID PURSUANT TO SHAREHOLDER SERVICING/DISTRIBUTION PLANS
INVESTOR A SHARES
<TABLE>
<CAPTION>
NET
FEES PAID
FUND NET (SHAREHOLDER
FEES PAID (12B-1 SERVICING
COMPONENT) COMPONENT) FEES NET
PERIOD ENDED 3/31/96 PERIOD ENDED 3/31/96 WAIVED FEES PAID
------- ------- FY 11/30/95 FYE 11/30/95
<S> <C> <C> <C> <C>
Government Money Market Fund $16,455.40 $41,138.51 $ 0 $66,320
Tax Exempt Fund $10,736.30 $96,941 0 325,609
Value Fund $42,080.39 0 0 100,684
Capital Growth Fund $14,002.47 0 0 33,996
Emerging Growth Fund $5,258.18 0 0 10,934
Disciplined Equity Fund $1,260.99 0 0 926
Equity Index Fund $0.00 0 0 3
Balanced Assets Fund $4,779.67 0 0 12,281
Short-Intermediate Government Fund 0 0 134,526
$40,480.00
Short-Term Income Fund $1,478.04 $507.60 0 24,650
Diversified Income Fund $11,251.60 0 0 22,769
Strategic Fixed Income Fund $4,469.96 0 0 349
Municipal Income Fund $18,008.35 0 0 51,257
Short-Term Municipal Income Fund 0 4,237
$1,946.00 $626.41
Intermediate Municipal Bond Fund $920.48 0 0 1,714
Florida Intermediate Municipal 0 0 4,198
Bond Fund $1,498.39
Georgia Intermediate Municipal 0 0 20,573
Bond Fund $5,919.11
Maryland Intermediate Municipal 0 0 42,880
Bond Fund $13,895.07
North Carolina Intermediate 0 0 17,214
Municipal Bond Fund $5,257.95
South Carolina Intermediate 0 0 31,815
Municipal Bond Fund $9,734.75
Tennessee Intermediate Municipal 0 0 15,683
Bond Fund $4,998.34
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Texas Intermediate Municipal Bond 0 0 1,638
Fund $534.24
Virginia Intermediate Municipal 0 0 151,365
Bond Fund $47,116.23
Florida Municipal Bond Fund $1,248.67 0 0 3,021
Georgia Municipal Bond Fund $4.44 0 0 13
Maryland Municipal Bond Fund $672.03 0 0 1,205
North Carolina Municipal Bond Fund 0 0 1,530
$258.37
South Carolina Municipal Bond Fund 0 0 850
$822.50
Tennessee Municipal Bond Fund $140.74 0 0 216
Texas Municipal Bond Fund $223.17 0 0 311
Virginia Municipal Bond Fund $437.02 0 0 810
</TABLE>
FEES PAID PURSUANT TO DISTRIBUTION PLANS
INVESTOR C SHARES - NON-MONEY MARKET FUNDS
INVESTOR B SHARES - MONEY MARKET FUNDS
<TABLE>
<CAPTION>
NET
FUND FEES PAID
NET (SHAREHOLDER
FEES PAID (12B-1 SERVICING COMPONENT)
COMPONENT) PERIOD ENDED 3/31/96 NET
PERIOD ENDED 3/31/96 FEES PAID
FYE 11/30/95
<S> <C> <C> <C>
Government Money Market Fund $ 0 $ 44,849.32 $ 0
Tax Exempt Fund 0 $ 90,151.60 0
Value Fund $ 5,473.54 $ 3,691.06 35,944
Capital Growth Fund $ 4,271.18 $ 2,880.17 29,156
Emerging Growth Fund $ 1,034.88 $ 696.37 6,801
Disciplined Equity Fund $375.04 $ 249.30 1,185
Equity Index Fund $0 $0 N/A
Balanced Assets Fund $ 1,321.25 $ 898.11 8,359
105
<PAGE>
Short-Intermediate Government Fund $ 13,283.36 $ 7,730.30 70,814
Short-Term Income Fund $ 3,402.21 $ 3,905.80 24,650
Diversified Income Fund $ 4,406.98 $ 2,159.11 22,769
Strategic Fixed Income Fund $316.71 $ 189.92 349
Municipal Income Fund $ 2,823.76 $ 1,386.55 19,872
Short-Term Municipal Income Fund $ 865.61 $ 1,146.43 2,660
Intermediate Municipal Bond Fund $ 586.62 $ 434.35 662
Florida Intermediate Municipal Bond Fund $ 290.06 $ 172.80 1,436
Georgia Intermediate Municipal Bond Fund $ 2,613.10 $1,529.53 12,823
Maryland Intermediate Municipal Bond Fund $2,972.66 $ 1,782.66 13,177
North Carolina Intermediate Municipal Bond Fund $ 1,435.87 $ 856.47 7,248
South Carolina Intermediate Municipal Bond Fund $ 5767.95 $ 3,425.64 28,757
Tennessee Intermediate Municipal Bond Fund $ 2.41 $ 1.44 11
Texas Intermediate Municipal Bond Fund $ 598.51 $ 356.82 2,216
Virginia Intermediate Municipal Bond Fund $ 7,394.28 $ 4,374.82 38,399
Florida Municipal Bond Fund $ 56.22 $ 31.74 182
Georgia Municipal Bond Fund $ 87.35 $ 43.25 270
Maryland Municipal Bond Fund $ 3.03 $ 1.50 17
North Carolina Municipal Bond Fund $ 4.10 $ 2.55 103
South Carolina Municipal Bond Fund $ 562.09 $ 257.26 27
Tennessee Municipal Bond Fund $ 72.07 $ 31.45 364
Texas Municipal Bond Fund $ 88.67 $ 43.88 29
Virginia Municipal Bond Fund $ 54.24 $ 27.16 61
</TABLE>
NOTE: All fees paid under the Investor A and Investor C/B Shares Distribution
Plans were accrued as payments to broker/dealers and financial
institutions offering such shares to their customers.
106
<PAGE>
FEES PAID PURSUANT TO DISTRIBUTION PLANS
INVESTOR D SHARES - MONEY MARKET FUNDS
<TABLE>
<CAPTION>
NET FEES PAID
NET (SHAREHOLDER FYE
FEES PAID (12B-1 SERVICING COMPONENT)
COMPONENT) PERIOD ENDED 3/31/96 11/30/96
PERIOD ENDED 3/31/96
FUND
<S> <C> <C> <C>
Government Money Market Fund $ 1.23 $ 1.67 4
Tax Exempt Fund $ 1.20 $ 1.46 2
</TABLE>
FEES PAID PURSUANT TO DISTRIBUTION PLANS
INVESTOR C SHARES - MONEY MARKET FUNDS
INVESTOR N SHARES - NON-MONEY MARKET FUNDS
<TABLE>
<CAPTION>
FEES PAID
NET (SHAREHOLDER
FEES PAID (12B-1 SERVICING
COMPONENT) COMPONENT)
PERIOD ENDED PERIOD ENDED NET
3/31/96 3/31/96 FEES PAID
FUND FYE 11/30/95
<S> <C> <C> <C>
Government Money Market Fund $ 0.00 $ 1,895.46
Tax Exempt Fund $ 0.00 $ 27,500.83
Value Fund $ 145,275.27 $ 72,637.63 $449,537
Capital Growth Fund $ 101,564.48 $ 33,854.83 314,386
Emerging Growth Fund $ 82,069.51 $ 27,356.50 232,800
Disciplined Equity Fund $ 43,585.75 $ 14,528.58 39,592
Nations Equity Index Fund $ 0.00 $ 0.00 --
Balanced Assets Fund $ 110,015.94 $ 55,007.97 421,921
Short-Intermediate Government Fund $ 16,952.38 $ 12,108.84 70,600
Short-Term Income Fund $ 2,738.41 $ 6,846.02 38,981
Diversified Income Fund $ 149,179.97 $ 74,589.98 538,683
Strategic Fixed Income Fund $ 3,421.99 $ 2,138.74 14,648
Municipal Income Fund $ 29,356.11 $ 14,678.05 136,830
Short-Term Municipal Income Fund $ 3,998.28 $ 9,995.69 37,488
Intermediate Municipal Bond Fund $ 1,239.10 $ 1,239.10 5,868
Florida Intermediate Municipal Bond Fund $ 3,717.78 $ 3,717.78 23,484
Georgia Intermediate Municipal Bond Fund $ 6,838.88 $ 6,838.88 38,810
Maryland Intermediate Municipal Bond Fund $ 3,761.25 $ 3,761.25 22,102
North Carolina Intermediate Municipal Bond Fund $ 6,740.61 $ 6,740.61 34,834
South Carolina Intermediate Municipal Bond Fund $ 5,660.88 $ 5,660.88 30,676
Tennessee Intermediate Municipal Bond Fund $ 2,950.00 $ 2,950.00 17,478
Texas Intermediate Municipal Bond Fund $ 2,467.32 $ 2,467.32 15,692
107
<PAGE>
Virginia Intermediate Municipal Bond Fund $ 10,073.97 $ 10,073.97 55,284
Florida Municipal Bond Fund $ 41,713.29 $ 20,856.65 174,654
Georgia Municipal Bond Fund $ 21,200.11 $ 10,600.06 84,678
Maryland Municipal Bond Fund $ 16,622.75 $ 8,311.38 52,328
North Carolina Municipal Bond Fund $ 49,477.85 $ 24,738.91 207,955
South Carolina Municipal Bond Fund $ 21,418.47 $ 10,709.23 80,631
Tennessee Municipal Bond Fund $ 11,115.33 $ 5,557.67 46,226
Texas Municipal Bond Fund $ 20,606.45 $ 10,303.22 89,464
Virginia Municipal Bond Fund $ 27,318.78 $ 13,659.39 111,655
</TABLE>
DISTRIBUTOR
On the Transition Date, Stephens Inc. (the "Distributor"), began
serving as the principal underwriter and distributor of the shares of the Funds,
replacing Funds Distributor, Inc. in this capacity. At a meeting held on August
4, 1993, the Board of Trustees selected Stephens Inc. as Distributor, effective
on the Transition Date, and approved a distribution agreement ("Distribution
Agreement") with the Distributor. Pursuant to the Distribution Agreement, the
Distributor, as agent, sells shares of the Funds on a continuous basis and
transmits purchase and redemption orders that its receives to the Trust or the
Transfer Agent. Additionally, the Distributor has agreed to use appropriate
efforts to solicit orders for the sale of shares and to undertake such
advertising and promotion as it believes appropriate in connection with such
solicitation. Pursuant to the Distribution Agreement, the Distributor, at its
own expense, finances those activities which are primarily intended to result in
the sale of shares of the Funds, 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 Trust pursuant to Rule 12b-1 under the 1940 Act.
The Distribution Agreement will continue year to year as long as such
continuance is approved at least annually by (i) the Board of Trustees or a vote
of the majority (as defined in the 1940 Act) of the outstanding voting
securities of a Fund and (ii) a majority of the trustees who are not parties to
the Distribution Agreement or "interested persons" of any such party by a vote
cast in person at a meeting called for such purpose. The Distribution Agreement
is not assignable and is terminable with respect to a Fund, without penalty, on
60 days' notice by the Board of Trustees, the vote of a majority (as defined in
the 1940 Act) of the outstanding voting securities of a Fund, or by the
Distributor.
108
<PAGE>
For the fiscal years ended November 30, 1993, 1994 and 1995, the
Trust's distributors received $2,384,184, $253,596 and $2,529,854, respectively,
in sales loads in connection with purchases of shares in the Non-Money Market
Funds. The distributors retained $12,037.09, $25,931.38 and $46,619 of the
amount received during the fiscal years ended November 30, 1993, 1994 and 1995
respectively, and paid the balance to selling dealers.
In connection with Investor A Shares, the distributors received
$2,326,597, $251,382 and $301,358 in front end sales loads, and $548,118,
$962,260 and $823,568 in 12b-1 fees for the fiscal years ended November 30,
1993, 1994 and 1995 respectively. Of those amounts, the distributors retained
$12,037.09, $25,931.38 and $46,619 of the front end sales loads, and $0, $0 and
$0 of the 12b-1 fees, and paid the balance to selling dealers. In connection
with the Contingent Deferred Sales Charges, the Distributors received $197,617
and $0 for the fiscal year ended November 30, 1994 and 1995, respectively and
retained $0 and $0.
In connection with Investor C Shares, the distributors received
$57,587, $2,214 and $0 in front end sales loads, $495,249, $412,364 and $307,980
in 12b-1 fees, and $447,144, $27,296 and $4,470 in contingent deferred sales
charge fees for the fiscal years ended November 30, 1993, 1994 and 1995
respectively. Of those amounts, the distributors retained $0, $0 and $0 of the
front end sales loads, $117,307.76, $116,787.86 and $22,840 of the 12b-1 fees
and $0, $17,460.67 and $4,066 of the contingent deferred sales charge fees, and
paid the balance to selling dealers.
In connection with Investor N Shares the distributors received for the
fiscal years ended November 30, 1993, 1994 and 1995 $187,631 $1,518,961 and
$2,228,496 in 12b-1 fees and $7,148,395, $1,522,633 and $1,581,923 in contingent
deferred sales fees. No fees were retained by the Distributor.
INDEPENDENT ACCOUNTANT AND REPORTS
On November 28, 1992, the Board of Trustees selected Price Waterhouse
LLP, with offices at 160 Federal Street, Boston, MA 02110, to serve as
independent accountant to Nations Fund Trust for the fiscal years beginning
December 1, 1992. Certain financial information which appears in the
Prospectuses and the financial statements has been audited by the accountants.
The audited financial statements and portfolio of investments contained
in the Annual Report for the fiscal period ended March 31, 1996, are hereby
incorporated by reference in this SAI. The Annual Reports will be sent free of
charge with this SAI to any shareholder who requests this SAI.
COUNSEL
Morrison & Foerster LLP, 2000 Pennsylvania Avenue, N.W., Suite 5500,
Washington, D.C. 20006-1812, is counsel to the Trust.
109
<PAGE>
ADDITIONAL INFORMATION ON PERFORMANCE
From time to time, the yield and total return of a Fund's Investor
Shares and Primary Shares may be quoted in advertisements, shareholder reports,
and other communications to shareholders. 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.
YIELD CALCULATIONS
Money Market Funds. The "yield" and "effective yield" of Primary A,
Primary B, Investor A, Investor B, Investor C and Investor D Shares of each
Money Market Fund are computed separately as described in the Prospectuses
according to formulas prescribed by the SEC. The standardized seven-day yield is
computed by determining the net change, exclusive of capital changes, in the
value of a hypothetical pre-existing account in the particular Fund involved
having a balance of one share of the class or series involved at the beginning
of the period, dividing the net change in account value by the value of the
account at the beginning of the base period to obtain the base period return,
and multiplying the base period return by (365/7). The net change in the value
of an account in each Fund includes the value of additional shares purchased
with dividends from the original share, and dividends declared on both the
original share and any such additional shares; and all fees, other than
nonrecurring account or sales charges, that are charged to shareholder accounts
in proportion to the length of the base period and the Fund's average account
size. The capital changes to be excluded from the calculation of the net change
in account value are realized gains and losses from the sale of securities and
unrealized appreciation and depreciation. The effective annualized yield for a
class or series of shares in a Fund is computed by compounding the unannualized
base period return (calculated as above) by adding 1 to the base period return,
raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the
result.
In addition, the "tax-equivalent yield" of the Primary A, Primary B,
Investor A, Investor B, Investor C and Investor D Shares of the Tax Exempt Fund
is computed by: (a) dividing the portion of the yield that is exempt from
Federal income tax by one minus a stated Federal income tax rate; and (b) adding
the figure resulting from (a) above to that portion, if any, of the yield that
is not exempt from Federal income tax.
The current yield for each class or series of shares may be obtained by
calling the Trust at the telephone number provided on the cover page.
SEVEN DAY YIELD FOR THE PERIOD ENDED 3/31/96
<TABLE>
<CAPTION>
Effective Tax
Yield Yield Tax Equivalent
Nations Government Without Effective Without Equivalent Yield Without
Money Market Fund Yield Fee Waivers Yield Fee Waivers Yield Fee Waivers
----- ------------ --------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Primary A Shares 4.97% 4.68% 5.09% 4.80% N/A N/A
Primary B Shares 4.72% 4.43% 4.83% 4.54% N/A N/A
Investor A Shares 4.62% 4.33% 4.72% 4.43% N/A N/A
110
<PAGE>
Investor B Shares 4.72% 4.43% 4.83% 4.54% N/A N/A
Investor C Shares 4.72% 4.43% 4.83% 4.54% N/A N/A
Investor D Shares 4.39% 4.10% 4.48% 4.19% N/A N/A
Nations Tax Exempt
Fund
Primary A Shares 3.40% 3.13% 3.45% 3.18% 4.93% 4.54%
Primary B Shares 3.15% 2.88% 3.19% 2.92% 4.57% 4.17%
Investor A Shares 3.15% 2.88% 3.19% 2.92% 4.57% 4.17%
Investor B Shares 3.20% 2.93% 3.25% 2.98% 4.64% 4.25%
Investor C Shares 3.25% 2.98% 3.30% 3.03% 4.71% 4.32%
Investor D Shares 2.74% 2.47% 2.77% 2.50% 3.97% 3.58%
</TABLE>
Non-Money Market Funds. Yield is calculated separately for the Investor
A, Investor C, Investor N, Primary A and Primary B Shares of a Non-Money Market
Fund by dividing the net investment income per share for a particular class or
series of shares (as described below) earned during a 30-day period by the
maximum offering price per share on the last day of the period (for Primary A
and Primary B Shares, maximum offering price per share is the same as the net
asset value per share) and annualizing the result on a semi-annual basis by
adding one to the quotient, raising the sum to the power of six, subtracting one
from the result and then doubling the difference. For a class or series of
shares in a Fund, net investment income per share earned during the period is
based on the average daily number of shares outstanding during the period
entitled to receive dividends and includes dividends and interest earned during
the period minus expenses accrued for the period, net of reimbursements. This
calculation can be expressed as follows:
6
Yield = 2 [(a-b+ 1) - 1]
----
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the 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 (again, for Primary A and Primary B
Shares, this is equivalent to net asset value per
share).
For the purpose of determining net investment income earned during the
period (variable- "a" in the formula), dividend income on equity securities held
by a Fund is recognized by accruing 1/360 of the stated dividend rate of the
security each day that the security is in the portfolio. Each Fund calculates
interest earned on any debt obligations held in its portfolio by computing the
yield to maturity of each obligation held by it based on the market value of the
obligation (including
111
<PAGE>
actual accrued interest) at the close of business on the last business day of
each month, or, with respect to obligations purchased during the month, the
purchase price (plus actual accrued interest) and dividing the result by 360 and
multiplying the quotient by the market value of the obligation (including actual
accrued interest) in order to determine the interest income on the obligation
for each day of the subsequent month that the obligation is in the portfolio.
For purposes of this calculation, it is assumed that each month contains 30
days. The maturity of an obligation with a call provision is the next call date
on which the obligation reasonably may be expected to be called or, if none, the
maturity date. With respect to debt obligations purchased at a discount or
premium, the formula generally calls for amortization of the discount or
premium. The amortization schedule will be adjusted monthly to reflect changes
in the market values of such debt obligations. The Municipal Income Fund,
Short-Term Municipal Income Fund, Intermediate Municipal Bond Fund, the State
Intermediate Municipal Bond Funds and the State Municipal Bond Funds calculate
interest gained on tax-exempt obligations issued without original issue discount
and having a current market discount by using the coupon rate of interest
instead of the yield to maturity. In the case of tax-exempt obligations that are
issued with original issue discount, where the discount based on the current
market value exceeds the then-remaining portion of original issue discount, the
yield to maturity is the imputed rate based on the original issue discount
calculation. Conversely, where the discount based on the current market value is
less than the remaining portion of the original issue discount, the yield to
maturity is based on the market value.
Expenses accrued for the period (variable "b" in the formula) include
recurring fees charged by Nations Fund to shareholder accounts in proportion to
the length of the base period. Undeclared earned income will be subtracted from
the maximum offering price per share (which for Primary A and Primary B Shares
is net asset value per share) (variable "d" in the formula). Undeclared earned
income is the net investment income which, at the end of the base period, has
not been declared as a dividend, but is reasonably expected to be and is
declared as a dividend shortly thereafter. A Fund's maximum offering price per
share for purposes of the formula includes the maximum sales charge, if any,
imposed by the Fund, as reflected in the Fund's prospectus.
The Funds may provide additional yield calculations in communications
(other than advertisements) to the holders of Investor A, Investor C or Investor
N Shares. These may be calculated based on the Investor A, Investor C or
Investor N Shares' net asset values per share (rather than their maximum
offering prices) on the last day of the period covered by the yield
computations. That is, some communications provided to the holders of Investor
A, Investor C or Investor N Shares may also include additional yield
calculations prepared for the holders of Primary A or Primary B Shares. Such
additional quotations, therefore, will not reflect the effect of the sales
charges mentioned above.
Investor A Shares Only. Based on the foregoing calculations, the yield,
taking into account fee waivers and/or expense reimbursements, and the yield
without fee waivers and/or expense reimbursements for the 30-day period ended
March 31, 1996 were as follows:
112
<PAGE>
THIRTY DAY YIELD FOR THE PERIOD ENDED 3/31/96
<TABLE>
<CAPTION>
Tax
Yield Tax Equivalent
Without Equivalent Yield Without
Yield Fee Waivers Yield Fee Waivers
<S> <C> <C> <C> <C>
Short-Intermediate
Government Fund
Primary A Shares 5.36% 5.15% N/A N/A
Investor A Shares 5.16% 4.92% N/A N/A
Investor C Shares 4.86% 4.17% N/A N/A
Investor N Shares 4.76% 4.17% N/A N/A
Short-Term Income Fund
Primary A Shares 5.60% 5.35% N/A N/A
Investor A Shares 5.40% 4.83% N/A N/A
Investor C Shares 5.25% 4.33% N/A N/A
Investor N Shares 5.25% 4.33% N/A N/A
Diversified Income Fund
Primary A Shares 7.00% 6.96% N/A N/A
Investor A Shares 6.75% 6.65% N/A N/A
Investor C Shares 6.49% 6.14% N/A N/A
Investor N Shares 6.24% 5.89% N/A N/A
Strategic Fixed Income Fund
Primary A Shares 5.56% 5.50% N/A N/A
Investor A Shares 5.35% 5.27% N/A N/A
Investor C Shares 5.05% 4.52% N/A N/A
Investor N Shares 4.90% 4.52% N/A N/A
Nations Municipal Income Fund
Primary A Shares 5.21% 4.96% 7.55% 7.19%
Investor A Shares 5.01% 4.71% 7.26% 6.83%
Investor C Shares 4.70% 4.20% 6.81% 6.09%
Investor N Shares 4.45% 3.95% 6.45% 5.72%
Nations Short-Term Municipal
Income Fund
- ------------
Primary A Shares 3.80% 3.54% 5.51% 5.13%
Investor A Shares 3.60% 3.05% 5.22% 4.42%
Investor C Shares 3.45% 2.45% 5.00% 3.55%
Investor N Shares 3.45% 2.55% 5.00% 3.70%
113
<PAGE>
Nations Intermediate
Municipal Bond Fund
- -------------------
Primary A Shares 4.56% 4.30% 6.61% 6.23%
Investor A Shares 4.35% 4.05% 6.30% 5.87%
Investor C Shares 4.05% 3.30% 5.87% 4.78%
Investor N Shares 4.05% 3.30% 5.87% 4.78%
Nations Florida Intermediate
Municipal Bond Fund
- -------------------
Primary A Shares 4.38% 4.19% 6.35% 6.07%
Investor A Shares 4.18% 3.95% 6.06% 5.72%
Investor C Shares 3.88% 3.20% 5.62% 4.64%
Investor N Shares 3.88% 3.20% 5.62% 4.64%
Nations Georgia Intermediate
Municipal Bond Fund
- -------------------
Primary A Shares 4.36% 4.17% 6.92% 6.62%
Investor A Shares 4.16% 3.93% 6.60% 6.24%
Investor C Shares 3.85% 3.17% 6.11% 5.03%
Investor N Shares 3.85% 3.17% 6.11% 5.03%
Nations Maryland Intermediate
Municipal Bond Fund
- -------------------
Primary A Shares 4.15% 3.96% 6.48% 6.19%
Investor A Shares 3.95% 3.72% 6.17% 5.81%
Investor C Shares 3.65% 2.97% 5.70% 4.64%
Investor N Shares 3.65% 2.97% 5.70% 4.64%
Nations North Carolina
Intermediate Municipal Bond Fund
- --------------------------------
Primary A Shares 4.32% 4.16% 6.97% 6.71%
Investor A Shares 4.12% 3.87% 6.65% 6.24%
Investor C Shares 3.81% 3.11% 6.15% 5.02%
Investor N Shares 3.81% 3.11% 6.15% 5.02%
Nations South Carolina
Intermediate Municipal Bond Fund
- --------------------------------
Primary A Shares 4.56% 4.36% 7.35% 7.03%
Investor A Shares 4.36% 4.12% 7.03% 6.65%
Investor C Shares 4.06% 3.37% 6.55% 5.44%
Investor N Shares 4.06% 3.37% 6.55% 5.44%
Nations Tennessee Intermediate
Municipal Bond Fund
- -------------------
Primary A Shares 4.35% 4.19% 6.90% 6.65%
Investor A Shares 4.15% 3.90% 6.59% 6.19%
Investor C Shares 3.89% 3.19% 6.17% 5.06%
114
<PAGE>
Investor N Shares 3.85% 3.15% 6.11% 5.00%
Nations Texas Intermediate
Municipal Bond Fund
- -------------------
Primary A Shares 4.37% 4.21% 6.33% 6.10%
Investor A Shares 4.17% 3.92% 6.04% 5.68%
Investor C Shares 3.87% 3.17% 5.61% 4.59%
Investor N Shares 3.87% 3.17% 5.61% 4.59%
Nations Virginia Intermediate
Municipal Bond Fund
- -------------------
Primary A Shares 4.14% 3.89% 6.55% 6.15%
Investor A Shares 3.94% 3.65% 6.23% 5.77%
Investor C Shares 3.64% 2.90% 5.75% 4.58%
Investor N Shares 3.64% 2.90% 5.75% 4.58%
Nations Florida Municipal
Bond Fund
- ---------
Primary A Shares 5.04% 4.58% 7.30% 6.64%
Investor A Shares 4.83% 4.33% 7.00% 6.28%
Investor C Shares 4.53% 3.83% 6.57% 5.55%
Investor N Shares 4.28% 3.58% 6.20% 5.19%
Nations Georgia Municipal
Bond Fund
- ---------
Primary A Shares 5.05% 4.59% 8.02% 7.29%
Investor A Shares 4.83% 4.33% 7.67% 6.87%
Investor C Shares 4.55% 3.85% 7.22% 6.11%
Investor N Shares 4.30% 3.60% 6.83% 5.71%
Nations Maryland Municipal
Bond Fund
- ---------
Primary A Shares 4.80% 4.34% 7.50% 6.78%
Investor A Shares 4.60% 4.10% 7.19% 6.41%
Investor C Shares 4.32% 3.62% 6.75% 5.66%
Investor N Shares 4.04% 3.34% 6.31% 5.22%
Nations North Carolina
Municipal Bond Fund
- -------------------
Primary A Shares 4.91% 4.45% 7.92% 7.18%
Investor A Shares 4.71% 4.21% 7.60% 6.79%
Investor C Shares 4.42% 3.72% 7.13% 6.00%
Investor N Shares 4.16% 3.46% 6.71% 5.58%
115
<PAGE>
Nations South Carolina
Municipal Bond Fund
- -------------------
Primary A Shares 5.00% 4.54% 8.06% 7.32%
Investor A Shares 4.80% 4.30% 7.74% 6.94%
Investor C Shares 4.50% 3.80% 7.26% 6.13%
Investor N Shares 4.25% 3.55% 6.85% 5.73%
Nations Tennessee
Municipal Bond Fund
- -------------------
Primary A Shares 4.85% 4.39% 7.70% 6.97%
Investor A Shares 4.65% 4.15% 7.38% 6.59%
Investor C Shares 4.34% 3.64% 6.89% 5.78%
Investor N Shares 4.10% 3.40% 6.51% 5.40%
Nations Texas
Municipal Bond Fund
- -------------------
Primary A Shares 4.87% 4.41% 7.06% 6.39%
Investor A Shares 4.67% 4.17% 6.77% 6.04%
Investor C Shares 4.37% 3.67% 6.33% 5.32%
Investor N Shares 4.12% 3.42% 5.97% 4.96%
Nations Virginia
Municipal Bond Fund
- -------------------
Primary A Shares 5.14% 4.68% 8.13% 7.40%
Investor A Shares 4.94% 4.44% 7.81% 7.02%
Investor C Shares 4.63% 3.93% 7.32% 6.21%
Investor N Shares 4.38% 3.68% 6.92% 5.82%
The "tax-equivalent" yield is computed by: (a) dividing the portion of the yield
(calculated as above) that is exempt from Federal income tax by one minus a
stated Federal income tax rate; and adding that figure to that portion, if any,
of the yield that is not exempt from Federal income tax. The Federal income tax
rate used in calculating the "tax-equivalent" yield was 31%. The state income
tax rate used in calculating the "tax-equivalent" yield of the State
Intermediate Municipal Bond Funds was as follows: Florida --0%;; Georgia --6%;
Maryland --5%; North Carolina --7%; South Carolina --7%; Tennessee 6%; Texas
- --0%; and Virginia --5.75%.
Hypothetical examples showing the level of taxable yield needed to produce
on after-tax equivalent to an assumed tax-free yield may be provided to
shareholders. Provided below are such illustrations:
For the Georgia Intermediate Municipal Bond fund and Georgia Municipal Bond
Fund:
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Single Return $23,350-$56,550 $56,550-$117,950 $117,950-$256,500
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Joint Return $39,000-$94,250 $94,250-$143,600 $143,600-$256,500
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
116
<PAGE>
<TABLE>
<CAPTION>
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
4% 6.06% 6.35% 6.90%
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
5% 7.58% 7.94% 8.62%
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
6% 9.09% 9.52% 10.34%
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
7% 10.60% 11.11% 12.07%
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
8% 12.12% 12.70% 13.79%
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1995 Federal (28%, 31%, 36%) and Georgia (6%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note the highest 1995
effective Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal surtax imposed on
certain high-income taxpayers.
For the Maryland Intermediate Municipal Bond Fund and Maryland Municipal
Bond Fund:
<TABLE>
<CAPTION>
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Single Return $23,350-$56,550 $56,550-$117,950 $117,950-$256,500
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
Joint Return $39,000-$94,250 $94,250-$143,600 $143,600-$256,500
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
4% 6.20% 6.50% 7.08%
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
5% 7.75% 8.13% 8.85%
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
6% 9.30% 9.76% 10.62%
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
7% 10.85% 11.38% 12.39%
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
8% 12.40% 13.01% 14.16%
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1995 Federal (28%, 31%, 36%), Maryland (5%) and local county (2.5%) tax
rates and assume a Federal tax benefit for the state and local taxes. Note the
highest 1995 effective Federal tax rate may be higher than 36% due to the
phase-out of allowable itemized deductions and personal exemptions for certain
taxpayers. This schedule does not take into account the 39.6% Federal surtax
imposed on certain high-income taxpayers.
117
<PAGE>
For the North Carolina Intermediate Municipal Bond Fund and North Carolina
Municipal Bond Fund:
<TABLE>
<CAPTION>
- ------------------- ------------------- ------------------ --------------------- -------------------
<S> <C> <C> <C> <C>
Single Return $23,350-$56,550 $56,550-$60,000 $60,000-$117,950 $117,950-$256,500
(28%, 7%) (31%, 7%) (31%, 7.75%) (36%, 7.75%)
- ------------------- ------------------- ------------------ --------------------- -------------------
- ------------------- ------------------- ------------------ --------------------- -------------------
Joint Return $39,000-$94,250 $94,250-$100,000 $100,000-$143,600 $143,600-$256,500
(28%, 7%) (31%,7%) (31%, 7.75%) (36%, 7.75%)
- ------------------- ------------------- ------------------ --------------------- -------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------- ------------------ ------------------ ------------------ -------------------
4% 6.15% 6.45% 6.53% 7.11%
- --------------------- ------------------ ------------------ ------------------ -------------------
- --------------------- ------------------ ------------------ ------------------ -------------------
5% 7.69% 8.06% 8.16% 8.99%
- --------------------- ------------------ ------------------ ------------------ -------------------
- --------------------- ------------------ ------------------ ------------------ -------------------
6% 9.23% 9.68% 9.80% 10.67%
- --------------------- ------------------ ------------------ ------------------ -------------------
- --------------------- ------------------ ------------------ ------------------ -------------------
7% 10.77% 11.29% 11.43% 12.44%
- --------------------- ------------------ ------------------ ------------------ -------------------
- --------------------- ------------------ ------------------ ------------------ -------------------
8% 12.31% 12.90% 13.06% 14.22%
- --------------------- ------------------ ------------------ ------------------ -------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1995 Federal (28%, 31% 36%) and North Carolina (7%, 7.75%) tax rates and
assume a Federal tax benefit for the state and local taxes. Note that the
highest 1995 effective Federal tax rate may be higher than 36% due to the
phase-out of allowable itemized deductions and personal exemptions for certain
taxpayers. This schedule does not take into account the 39.6% Federal surtax
imposed on certain high-income taxpayers.
118
<PAGE>
For the South Carolina Intermediate Municipal Bond Fund and South Carolina
Municipal Bond Fund:
<TABLE>
<CAPTION>
- ------------------- ------------------ ---------------------- ------------------------
<S> <C> <C> <C>
Single Return $23,350-$56,550 $56,500-$117,900 $117,950-$256,000
(28%, 7%) (31%, 7%) (36%, 7.%)
- ------------------- ------------------ ---------------------- ------------------------
- ------------------- ------------------ ---------------------- ------------------------
Joint Return $39,000-$94,250 $94,250-$143,600 $143,600-$256,500
(28%, 7%) (31%,7%) (36%, 7%)
- ------------------- ------------------ ---------------------- ------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------- ------------------ ------------------ ------------------
4% 6.15% 6.45% 7.02%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
5% 7.69% 8.06% 8.77%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
6% 9.23% 9.68% 10.53%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
7% 10.77% 11.29% 12.28%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
8% 12.31% 12.90% 14.04%
- --------------------- ------------------ ------------------ ------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1995 Federal (28%, 31%, 36%) and South Carolina (7%) tax rates and assume
a Federal tax benefit for the state and local taxes. Note that the highest 1995
effective Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal surtax imposed on
certain high-income taxpayers.
119
<PAGE>
For the Tennessee Intermediate Municipal Bond Fund and Tennessee Municipal Bond
Fund:
<TABLE>
<CAPTION>
- ------------------- ------------------ ---------------------- ------------------------
<S> <C> <C> <C>
Single Return $23,350-$56,550 $56,500-$117,900 $117,950-$256,000
(28%, 6%) (31%, 6%) (36%, 6.%)
- ------------------- ------------------ ---------------------- ------------------------
- ------------------- ------------------ ---------------------- ------------------------
Joint Return $39,000-$94,250 $94,250-$143,600 $143,600-$256,500
(28%, 6%) (31%,6%) (36%, 6%)
- ------------------- ------------------ ---------------------- ------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------- ------------------ ------------------ ------------------
4% 6.06% 6.35% 6.90%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
5% 7.58% 7.94% 8.62%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
6% 9.09% 9.52% 10.34%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
7% 10.61% 11.11% 12.07%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
8% 12.12% 12.70% 13.79%
- --------------------- ------------------ ------------------ ------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1995 Federal (28%, 31%, 36%) and Tennessee (6%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note that the highest 1995
effective Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal surtax imposed on
certain high-income taxpayers.
For the Virginia Intermediate Municipal Bond Fund and Virginia Municipal Bond
Fund:
<TABLE>
<CAPTION>
- ------------------- ------------------ ---------------------- ------------------------
<S> <C> <C> <C>
Single Return $23,350-$56,550 $56,500-$117,900 $117,950-$256,000
(28%, 5.75%) (31%, 5.75%) (36%, 5.75%)
- ------------------- ------------------ ---------------------- ------------------------
- ------------------- ------------------ ---------------------- ------------------------
Joint Return $39,000-$94,250 $94,250-$143,600 $143,600-$256,500
(28%, 5.75%) (31%,5.75%) (36%, 5.75%)
- ------------------- ------------------ ---------------------- ------------------------
120
<PAGE>
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------- ------------------ ------------------ ------------------
4% 6.04% 6.32% 6.87%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
5% 7.55% 7.91% 8.58%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
6% 9.06% 9.49% 10.30%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
7% 10.57% 11.07% 12.02%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
8% 12.08% 12.65% 13.73%
- --------------------- ------------------ ------------------ ------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1995 Federal (28%, 31%, 36%) and Virginia (5.75%) tax rates and assume a
Federal tax benefit for the state and local taxes. Note that the highest 1995
effective Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal surtax imposed on
certain high-income taxpayers.
For the Municipal Income Fund, Short-Term Municipal Income Fund, the
Intermediate Municipal Bond Fund, the Florida Intermediate Municipal Bond Fund,
Florida Municipal Bond Fund, the Texas Intermediate Municipal Bond Fund and
Texas Municipal Bond Fund:
<TABLE>
<CAPTION>
- ------------------- ------------------ ---------------------- ------------------------
<S> <C> <C> <C>
Single Return $23,350-$56,550 $56,500-$117,900 $117,950-$256,000
(28%) (31%) (36%)
- ------------------- ------------------ ---------------------- ------------------------
- ------------------- ------------------ ---------------------- ------------------------
Joint Return $39,000-$94,250 $94,250-$143,600 $143,600-$256,500
(28%) (31%) (36%)
- ------------------- ------------------ ---------------------- ------------------------
To match a
tax-free
yield of: A taxable investment would have to pay you:
- --------------------- ------------------ ------------------ ------------------
4% 5.56% 5.80% 6.25%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
5% 6.94% 7.25% 7.81%
- --------------------- ------------------ ------------------ ------------------
121
<PAGE>
- --------------------- ------------------ ------------------ ------------------
6% 8.33% 8.70% 9.38%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
7% 9.72% 10.14% 10.94%
- --------------------- ------------------ ------------------ ------------------
- --------------------- ------------------ ------------------ ------------------
8% 11.11% 11.59% 12.50%
- --------------------- ------------------ ------------------ ------------------
</TABLE>
The tax-free yields used here are hypothetical and no assurance can be made that
the Funds will obtain any particular yield. A fund's yield fluctuates as market
conditions change. The tax brackets and the related yield calculations are based
on the 1995 Federal (28%, 31%, 36%) tax rates. This analysis does not take into
account any state or local taxes imposed, although, with respect to the Florida
Intermediate Municipal Bond Fund, the Florida Municipal Bond Fund, the Texas
Intermediate Municipal Bond Fund and the Texas Municipal Bond Fund, neither
Florida nor Texas impose a personal income tax. Note that the highest 1995
effective Federal tax rate may be higher than 36% due to the phase-out of
allowable itemized deductions and personal exemptions for certain taxpayers.
This schedule does not take into account the 39.6% Federal surtax imposed on
certain high-income taxpayers.
There can be no assurance that all of a yield quoted by one of these Funds
will be tax-free since these Funds may invest in short-term taxable obligations
for temporary defensive periods as described in the Prospectuses. Also, the
above hypothetical examples are for illustration only. Tax laws and regulations
may be changed at any time by legislative or administrative actions and such
changes may make the information contained in such examples obsolete.
TOTAL RETURN CALCULATIONS
Each Non-Money Market Fund computes its average annual total return for
Investor A, Investor C, Investor N, Primary A and Primary B Shares separately by
determining the average annual compounded rates of return during specified
periods that equate the initial amount invested to the ending redeemable value
of such investment. This is done by dividing the ending redeemable value of a
hypothetical $1,000 initial payment by $1,000 and raising the quotient to a
power equal to one divided by the number of years (or fractional portion
thereof) covered by the computation and subtracting one from the result. This
calculation can be expressed as follows:
1/n
T = [(ERV) - 1]
---
P
Where: T = average annual total return.
ERV = ending redeemable value at
the end of the period covered
by the computation of a
hypothetical $1,000 payment
made at the beginning of the
period.
P = hypothetical initial payment of $1,000.
n = period covered by the computation, expressed in
terms of years.
122
<PAGE>
The Funds compute their aggregate total returns for Investor A, Investor
C, Investor N, Primary A and Primary B Shares separately by determining the
aggregate rates of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment. The
formula for calculating aggregate total return is as follows:
T = [(ERV) - 1]
-----
P
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations. The Funds' average annual total
return and aggregate total return quotations for Primary A, Investor A, Investor
C and Investor N Shares reflect the deduction of the maximum sales charge
charged (if applicable) with respect to the applicable class of shares in
connection with the purchase of these shares. The Funds may also provide, in
conjunction with such quotations for Primary A, Investor A, Investor C and
Investor N Shares, additional quotations that do not reflect the maximum sales
charge when the quotations are being provided to investors who are subject to
waiver of or reduction in the sales charges described in the Investor Shares
Prospectuses.
Based on the foregoing calculations, the Fund's average annual total
return for all classes of shares were as follows for the periods indicated:
AVERAGE ANNUAL TOTAL RETURN
<TABLE>
<CAPTION>
5-YEAR INCEPTION
FYE PERIOD ENDING THROUGH
3/31/96 3/31/96 3/31/96
<S> <C> <C> <C>
Nations Value Fund
Primary A Shares 30.81% 13.95% 13.39%
Investor A Shares 30.41% 13.77% 13.66%
Investor C Shares 29.15% N/A 14.94%
Investor N Shares 29.82% N/A 15.44%
Nations Capital Growth Fund
Primary A Shares 26.51% N/A 13.23%
Investor A Shares 26.25% N/A 12.97%
Investor C Shares 24.87% N/A 12.12%
Investor N Shares 25.36% N/A 13.15%
Nations Emerging Growth Fund
Primary A Shares 34.67% N/A 16.28%
Investor A Shares 34.35% N/A 16.52%
Investor C Shares 33.01% N/A 15.77%
Investor N Shares 33.36% N/A 18.81%
Nations Disciplined Equity Fund
Primary A Shares 30.95% N/A 24.52%
Invest A Shares 30.73% N/A 14.28%
123
<PAGE>
5-YEAR INCEPTION
FYE PERIOD ENDING THROUGH
3/31/96 3/31/96 3/31/96
Investor C Shares N/A N/A N/A
Investor N Shares 29.66% N/A 17.59%
Nations Equity Index Fund
Primary A Shares 31.62% N/A 18.21%
Investor A Shares N/A N/A N/A
Nations Balanced Assets Fund
Primary A Shares 23.43% N/A 11.08%
Investor A Shares 23.28% N/A 10.84%
Investor C Shares 22.02% N/A 10.03%
Investor N Shares 22.60% N/A 10.16%
Nations Short-Intermediate Government Fund
Primary A Shares 7.36% N/A 6.78%
Investor A Shares 7.15% N/A 6.64%
Investor C Shares 6.33% N/A 4.63%
Investor N Shares 6.71% N/A 3.65%
Nations Short-Term Income Fund
Primary A Shares 8.11% N/A 5.09%
Investor A Shares 7.92% N/A 4.82%
Investor C Shares 7.21% N/A 4.61%
Investor N Shares 7.74% N/A 4.78%
Nations Diversified Income Fund
Primary A Shares 11.21% N/A 9.17%
Investor A Shares 10.94% N/A 8.91%
Investor C Shares 9.95% N/A 8.57%
Investor N Shares 10.38% N/A 6.35%
Nations Strategic Fixed Income Fund
Primary A Shares 9.38% N/A 6.58%
Investor A Shares 9.16% N/A 6.38%
Investor C Shares 8.32% N/A 6.01%
Investor N Shares 8.67% N/A 4.58%
Nations Municipal Income Fund
Primary A Shares 8.91% 8.04% 7.94%
Investor A Shares 8.70% 7.89% 7.80%
Investor C Shares 7.67% N/A 6.41%
Investor N Shares 8.10% N/A 4.60%
Nations Short-Term Municipal Income Fund
Primary A Shares 5.72% N/A 4.09%
Investor A Shares 5.51% N/A 4.02%
Investor C Shares 4.93% N/A 4.91%
Investor N Shares 5.35% N/A 3.73%
Nations Intermediate Municipal Bond Fund
124
<PAGE>
5-YEAR INCEPTION
FYE PERIOD ENDING THROUGH
3/31/96 3/31/96 3/31/96
Primary A Shares 7.62% N/A 4.91%
Investor A Shares 7.42% N/A 4.34%
Investor C Shares 6.51% N/A 9.77%
Investor N Shares 7.08% N/A 3.89%
Nations Florida Intermediate Municipal Bond Fund
Primary A Shares 7.21% N/A 6.06%
Investor A Shares 6.99% N/A 5.91%
Investor C Shares 6.17% N/A 5.48%
Investor N Shares 6.67% N/A 4.60%
Nations Georgia Intermediate Municipal Bond Fund
Primary A Shares 7.21% N/A 6.62%
Investor A Shares 7.00% N/A 6.54%
Investor C Shares 6.18% N/A 5.73%
Investor N Shares 6.68% N/A 4.37%
Nations Maryland Intermediate Municipal Bond Fund
Primary A Shares 7.24% 6.58% 7.06%
Investor A Shares 7.03% 6.43% 6.93%
Investor C Shares 6.20% N/A 5.24%.
Investor N Shares 6.70% N/A 4.30%
Nations North Carolina Intermediate Municipal
Bond Fund
Primary A Shares 6.99% N/A 5.79%
Investor A Shares 6.78% N/A 5.58%
Investor C Shares 5.96% N/A 5.19%
Investor N Shares 6.46% N/A 4.34%
Nations South Carolina Intermediate Municipal
Bond Fund
Primary A Shares 7.18% N/A 6.31%
Investor A Shares 6.97% N/A 6.29%
Investor C Shares 6.15% N/A 5.62%
Investor N Shares 6.65% N/A 4.58%
Nations Tennessee Intermediate Municipal Bond Fund
Primary A Shares 7.19% N/A 4.83%
Investor A Shares 6.97% N/A 4.82%
Investor C Shares 6.15% N/A 9.74%
Investor N Shares 6.65% N/A 4.39%
Nations Texas Intermediate Municipal Bond Fund
Primary A Shares 6.84% N/A 5.39%
Investor A Shares 6.63% N/A 4.70%
Investor C Shares 5.81% N/A 9.22%
Investor N Shares 6.31% N/A 4.00%
125
<PAGE>
5-YEAR INCEPTION
FYE PERIOD ENDING THROUGH
3/31/96 3/31/96 3/31/96
Nations Virginia Intermediate Municipal Bond Fund
Primary A Shares 7.21% 6.45% 6.68%
Investor A Shares 6.99% 6.31% 6.55%
Investor C Shares 6.17% N/A 5.22%
Investor N Shares 6.67% N/A 4.18%
Nations Florida Municipal Bond Fund
Primary A Shares 8.08% N/A 3.46%
Investor A Shares 7.87% N/A 2.99%
Investor C Shares 6.84% N/A 13.44%
Investor N Shares 7.28% N/A 2.44%
Nations Georgia Municipal Bond Fund
Primary A Shares 8.64% N/A 3.01%
Investor A Shares 8.24% N/A 2.95%
Investor C Shares 7.41% N/A 13.69%
Investor N Shares 7.84% N/A 2.52%
Nations Maryland Municipal Bond Fund
Primary A Shares 7.94% N/A 9.09%
Investor A Shares 7.72% N/A 3.39%
Investor C Shares 6.67% N/A 12.74%
Investor N Shares 7.13% N/A 1.94%
Nations North Carolina Municipal Bond Fund
Primary A Shares 8.24% N/A 2.83%
Investor A Shares 8.02% N/A 3.22%
Investor C Shares 7.00% N/A 13.73%
Investor N Shares 7.44% N/A 2.50%
Nations South Carolina Municipal Bond Fund
Primary A Shares 8.58% N/A 4.40%
Investor A Shares 8.36% N/A 4.92%
Investor C Shares 7.28% N/A 13.46%
Investor N Shares 7.77% N/A 3.75%
Nations Tennessee Municipal Bond Fund
Primary A Shares 8.71% N/A 6.09%
Investor A Shares 8.49% N/A 4.50%
Investor C Shares 7.47% N/A 13.79%
Investor N Shares 7.90% N/A 3.38%
Nations Texas Municipal Bond Fund
Primary A Shares 8.97% N/A 3.01%
Investor A Shares 8.75% N/A 3.34%
Investor C Shares 7.69% N/A 13.65%
Investor N Shares 8.16% N/A 2.51%
126
<PAGE>
5-YEAR INCEPTION
FYE PERIOD ENDING THROUGH
3/31/96 3/31/96 3/31/96
Nations Virginia Municipal Bond Fund
Primary A Shares 8.55% N/A 2.64%
Investor A Shares 8.32% N/A 3.33%
Investor C Shares 7.29% N/A 13.59%
Investor N Shares 7.73% N/A 2.08%
127
<PAGE>
Based on the foregoing calculations, the Funds' aggregate total returns for
all classes of shares were as follows for the periods indicated:
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE ANNUAL TOTAL RETURN
5-Year 5-Year period Inception Inception
period
FYE FYE ending ending through through
3/31/96 3/31/96 3/31/96 3/31/96 3/31/96 3/31/96
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
<S> <C> <C> <C> <C> <C> <C>
Nations Value Fund
Primary A Shares 30.81% N/A 92.13$ ?% 127.24% N/A
Investor A Shares 30.41% N/A 90.58% ?% 124.50% N/A
Investor C Share 29.65% 29.15% N/A N/A 69.44% N/A
Investor N Shares 29.82% N/A N/A N/A 49.79% N/A
Nations Capital Growth Fund
Primary A Shares 26.51% N/A N/A N/A 54.49% N/A
Investor A Shares 26.25% N/A N/A N/A 53.12% 40.09%
Investor C Shares 25.37% 24.87% N/A N/A 49.17% 45.02%
Investor N Shares 25.36% N/A N/A N/A 41.57% 34.76%
Nations Emerging Growth Fund
Primary A Shares 34.67% N/A N/A N/A 65.08% N/A
Investor A Shares 34.35% NA/ N/A N/A 65.81% N/A
Investor C Shares 33.51% 33.01% N/A N/A 61.76% N/A
Investor N Shares 33.36% N/A N/A N/A 62.41% N/A
Nations Disciplined Equity Fund
Primary A Shares 30.95% N/A N/A N/A 115.29% N/A
Investor A Shares 30.73% N/A N/A N/A 43.00% N/A
Investor C Shares N/A N/A N/A N/A 23.43% 22.93%
Investor N Shares 29.66% N/A N/A N/A 35.24% N/A
Nations Equity Index Fund
Primary A Shares 31.62% N/A N/A N/A 46.77% N/A
Investor A Shares N/A N/A N/A N/A 12.67% N/A
Nations Balanced Assets Funds
Primary A Shares 23.43% N/A N/A N/A 44.43% N/A
Investor A Shares 23.28% N/A N/A N/A 43.27% N/A
Investor C Shares 22.52% 22.02% N/A N/A 39.67% N/A
Investor N Shares 22.60% N/A N/A N/A 31.29% N/A
Nations Short-Intermediate
Government Fund
Primary A Shares 7.36% N/A N/A N/A 35.80% N/A
Investor A Shares 7.15% N/A N/A N/A 34.85% N/A
Investor C Shares 6.83% 6.33% N/A N/A 18.70% N/A
Investor N Shares 6.71% N/A N/A N/A 10.61% N/A
Nations Short-Term Income Fund
Primary A Shares 8.11% N/A N/A N/A 18.99% N/A
Investor A Shares 7.92% N/A N/A N/A 17.90% N/A
Investor C. Shares 7.71% 7.21% N/A N/A 17.07% N/A
Investor N Shares 7.74% N/A N/A N/A 14.05% N/A
Nations Diversified Income Fund
Primary A Shares 11.21% N/A N/A N/A 34.97% N/A
Investor A Shares 10.94% N/A N/A N/A 33.05% N/A
Investor C Shares 10.45% 9.95% N/A N/A 32.17% N/A
Investor N Shares 10.38% N/A N/A N/A 18.91% N/A
Nations Strategic Fixed Income
Fund 9.38% N/A N/A N/A 24.36% N/A
Primary A Shares
128
<PAGE>
5-Year
period 5-Year period Inception Inception
FYE FYE ending ending through through
3/31/96 3/31/96 3/31/96 3/31/96 3/31/96 3/31/96
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
Investor A Shares 9.16% N/A N/A N/A 23.13% N/A
Investor C Shares 8.82% 8.32% N/A N/A 21.74% N/A
Investor N Shares 8.67% N/A N/A N/A 13.42% N/A
Nations Municipal Income Fund
Primary A Shares 8.91% N/A 47.20% ?% 48.39% N/A
Investor A Shares 8.70% N/A 46.20% ?% 47.38% N/A
Investor C Shares 8.17% 7.67% N/A N/A 26.51% N/A
Investor N Shares 8.10% N/A N/A N/A 13.48% N/A
Nations Short-Term Municipal
Income Fund
Primary A Shares 5.72% N/A N/A N/A 10.45% N/A
Investor A Shares 5.51% N/A N/A N/A 9.97% N/A
Investor C Shares 5.43% 4.93% N/A N/A 9.36% N/A
Investor N Shares 5.35% N/A N/A N/A 9.47% N/A
Nations Intermediate Municipal
Bond Fund
Primary A Shares 7.62% N/A N/A N/A 13.64% N/A
Investor A Shares 7.42% N/A N/A N/A 11.78% N/A
Investor C Shares 7.01% 6.51% N/A N/A 14.03% N/A
Investor N Shares 7.08% N/A N/A N/A 9.30% N/A
Nations Florida Intermediate
Municipal Bond Fund
Primary A Shares 7.21% N/A N/A N/A 21.45% N/A
Investor A Shares 6.99% N/A N/A N/A 20.84% N/A
Investor C Shares 6.67% 6.17% N/A N/A 19.19% N/A
Investor N Shares 6.67% N/A N/A N/A 13.50% N/A
Nations Georgia Intermediate
Municipal Bond Fund
Primary A Shares 7.21% N/A N/A N/A 28.89% N/A
Investor A Shares 7.00% N/A N/A N/A 28.09% N/A
Investor C Shares 6.68% 6.18% N/A N/A 23.48% N/A
Investor N Shares 6.68% N/A N/A N/A 12.78% N/A
Nations Maryland Intermediate
Municipal Bond Fund
Primary A Shares 7.24% N/A 37.52% ?% 46.36% N/A
Investor A Shares 7.03% N/A 36.59$ ?% 45.38% N/A
Investor C Shares 6.70% 6.20% N/A N/A 21.32 N/A
Investor N Shares 6.70% N/A N/A N/A 12.55% N/A
Nations North Carolina
Intermediate Municipal Bond Fund
Primary A Shares 6.99% N/A N/A N/A 20.44% N/A
Investor A Shares 6.78% N/A N/A N/A 19.60% N/A
Investor C Shares 6.46 5.96% N/A N/A 18.11 N/A
Investor N Shares 6.46% N/A N/A N/A 12.71% N/A
Nations South Carolina
Intermediate Municipal Bond Fund
Primary A Shares 7.18% N/A N/A N/A 29.55% N/A
Investor A Shares 6.97% N/A N/A N/A 26.87% N/A
Investor C Shares 6.65% 6.15% N/A N/A 22.99% N/A
Investor N Shares 6.65% N/A N/A N/A 13.42% N/A
Nations Tennessee Intermediate
Municipal Bond Fund
129
<PAGE>
5-Year
period 5-Year period Inception Inception
FYE FYE ending ending through through
3/31/96 3/31/96 3/31/96 3/31/96 3/31/96 3/31/96
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
Primary A Shares 7.19% N/A N/A N/A 14.99% N/A
Investor A Shares 6.97% N/A N/A N/A 15.14% N/A
Investor C Shares 6.65% 6.15% N/A N/A 13.99$% N/A
Investor N Shares 6.65% N/A N/A N/A 12.82% N/A
Nations Texas Intermediate
Municipal Bond Fund
Primary A Shares 6.84% N/A N/A N/A 18.40% N/A
Investor A Shares 6.63% N/A N/A N/A 15.60% N/A
Investor C Shares 6.31% 5.81% N/A N/A 13.23% N/A
Investor N Shares 6.31% N/A N/A N/A 11.48% N/A
Nations Virginia Intermediate
Municipal Bond Fund
Primary A Shares 7.21% N/A 36.69% ?% 52.55% N/A
Investor A Shares 6.99% N/A 35.78% ?% 49.35% N/A
Investor C Shares 6.67% 6.17% N/A N/A 21.24% N/A
Investor N Shares 6.67% N/A N/A N/A 12.22% N/A
Nations Florida Municipal Bond
Fund 8.08% N/A N/A N/A 8.11% N/A
Primary A Shares
Investor A Shares 7.87% N/A N/A N/A 7.03% N/A
Investor C Shares 7.34% 6.84% N/A N/A 19.43% N/A
Investor N Shares 7.28% N/A N/A N/A 6.07% N/A
Nations Georgia Municipal Bond
Fund 8.64% N/A N/A N/A 6.79% N/A
Primary A Shares
Investor A Shares 8.24% N/A N/A N/A 6.78% N/A
Investor C Shares 7.91% 7.41% N/A N/A 19.81% N/A
Investor N Shares 7.84% N/A N/A N/A 6.28% N/A
Nations Maryland Municipal Bond
Fund 7.94% N/A N/A N/A 14.21% N/A
Primary A Shares
Investor A Shares 7.72% N/A N/A N/A 8.34% N/A
Investor C Shares 7.17% 6.67% N/A N/A 18.40% N/A
Investor N Shares 7.13% N/A N/A N/A 4.81% N/A
Nations North Carolina Municipal
Bond Fund
Primary A Shares 8.24% N/A N/A N/A 6.39% N/A
Investor A Shares 8.02% N/A N/A N/A 7.95% N/A
Investor C Shares 7.50% 7.00% N/A N/A 19.86% N/A
Investor N Shares 7.44% N/A N/A N/A 6.23% N/A
Nations South Carolina Municipal
Bond Fund
Primary A Shares 8.58% N/A N/A N/A 10.23% N/A
Investor A Shares 8.36% N/A N/A N/A 12.20% N/A
Investor C Shares 7.78% 7.28% N/A N/A 19.47% N/A
Investor N Shares 7.77% N/A N/A N/A 9.42% N/A
Nations Tennessee Municipal Bond
Fund
Primary A Shares 8.71% N/A N/A N/A 13.08% N/A
Investor A Shares 8.49% N/A N/A N/A 11.19% N/A
Investor C Shares 7.97% 7.47% N/A N/A 19.95% N/A
Investor N Shares 7.90% N/A N/A N/A 8.47% N/A
Nations Texas Municipal Bond Fund
Primary A Shares 8.97% N/A N/A N/A 6.60% N/A
Investor A Shares 8.75% N/A N/A N/A 7.80% N/A
130
<PAGE>
5-Year
period 5-Year period Inception Inception
FYE FYE ending ending through through
3/31/96 3/31/96 3/31/96 3/31/96 3/31/96 3/31/96
Without Including Without Including Without Including
Sales Sales Sales Sales Sales Sales
Charges Charges Charges Charges Charges Charges
Investor C Shares 8.19% 7.69% N/A N/A 19.74% N/A
Investor N Shares 8.16% N/A% N/A N/A 6.25% N/A
Nations Virginia Municipal Bond
Fund 8.55% N/A N/A N/A 5.96% N/A
Primary A Shares
Investor A Shares 8.32% N/A N/A N/A 8.16% N/A
Investor C Shares 7.79% 7.29% N/A N/A 19.66% N/A
Investor N Shares 7.73% N/A N/A N/A 5.16% N/A
Fee waivers and/or expense reimbursements were in effect for the periods
presented. Primary B Shares were not offered during the period described above.
From time to time, the yields of each class of shares of a Money Market
Fund may be compared to the respective averages compiled by Donoghue's Money
Fund Report, a widely recognized independent publication that monitors the
performance of money market funds, or to the average yields reported by the Bank
Rate Monitor for money market deposit accounts offered by the 50 leading banks
and thrift institutions in the top five metropolitan statistical areas.
In addition, the Funds 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
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 Fund may be compared to data prepared by Lipper Analytical
Services, Inc. The performance and yield of a class of shares in the Value Fund,
Capital Growth Fund, Balanced Assets Fund, Equity Index Fund and Emerging Growth
Fund may be compared to the Standard & Poor's 500 Stock Index, an unmanaged
index of a group of common stocks, the Consumer Price Index, or the Dow Jones
Industrial Average, a recognized unmanaged index of common stocks of 30
industrial companies listed on the Exchange. The performance and yield of a
class of shares in the Short-Intermediate Government Fund may be compared to the
Shearson Lehman Intermediate Government Bond Index, an unmanaged index of
intermediate government securities. 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 Fund.
The Short-Intermediate Government Fund seeks to provide higher current
yields than money market funds and short-term treasury obligations. The
Short-Intermediate Government Fund also seeks to maintain greater price
stability than higher yielding long-term bond funds. Therefore, in its
advertisements and sales materials, the Short-Intermediate Government Fund may
compare performance of the Short-Intermediate Government Fund to money market
indices, such as those compiled by IBC/Donoghue, Inc. and Bank Rate Monitor. In
such advertising and sales materials, the Short-Intermediate Government Fund may
also compare the price stability of
131
<PAGE>
the Short-Intermediate Government Fund, or indices of funds with similar
investment objectives, to indices of long term government bond funds such as
those compiled by Salomon Brothers and Shearson Lehman Brothers Inc. The
Short-Intermediate Government Fund is not meant to be a substitute for a money
market fund which seeks to maintain a fixed net asset value of $1.00 per share.
Each Fund may quote information obtained from the Investment Company
Institute in its advertising materials and sales literature.
Ibbotson Data. Ibbotson Associates of Chicago, Illinois, ("Ibbotson")
provides historical returns of the capital markets in the United States. The
Funds may compare the performance of their share classes or series to the
long-term performance of the U.S. capital markets in order to demonstrate
general long-term risk versus reward investment scenarios. Performance
comparisons could also include the value of a hypothetical investment in common
stocks, long-term bonds or treasuries.
The capital markets tracked by Ibbotson are common stocks, small
capitalization stocks, long-term corporate bonds, intermediate-term government
bonds, long-term government bonds, Treasury Bills, and the U.S. rate of
inflation. These capital markets are based on the returns of several different
indices. For common stocks, the S&P is used. For small capitalization stocks,
return is based on the return achieved by Dimensional Fund Advisors (DFA) Small
Company Fund. This fund is a market-value-weighted index of the ninth and tenth
deciles of the Exchange, plus stocks listed on the American Stock Exchange
(AMEX) and over-the-counter (OTC) with the same or less capitalization as the
upperbound of the Exchange ninth decile. At year-end 1995, the DFA Small Company
Fund contained approximately 2,663 stocks, with a weighted average market
capitalization of $165.75 million. The unweighted average market capitalization
was $82.97 million, while the median was $56.0 million.
Unlike an investment in a common stock mutual fund, an investment in
bonds that are held to maturity provides a fixed and stated rate of return.
Bonds have a senior priority in liquidation or bankruptcy to common stocks, and
interest on bonds is generally paid from assets of the corporation before any
distributions to common shareholders. Bonds rated in the two highest rating
categories are considered high quality and to present minimal risks of default.
See Schedule A for a more complete explanation of these ratings of corporate
bonds. An advantage of investing in government bonds is that, in many cases,
they are backed by the credit and taxing power of the United States government,
and therefore, such securities may present little or no risk of default.
Although government securities fluctuate in price, they are highly liquid and
may be purchased and sold with relatively small transaction costs (direct
purchase of Treasury securities can be made with no transaction costs).
Long-term corporate bond returns are based on the performance of the
Salomon Brothers Long-Term-High-Grade Corporate Bond Index and include nearly
all "Aaa-" and "Aa-" rated bonds. Returns on intermediate-term government bonds
are based on a one-bond portfolio constructed each year, containing a bond which
is the shortest noncallable bond available with a maturity not less than 5
years. This bond is held for the calendar year and returns are recorded. Returns
on long-term government bonds are based on a one-bond portfolio constructed each
year,
132
<PAGE>
containing a bond that meets several criteria, including having a term of
approximately 20 years. The bond is held for the calendar year and returns are
recorded. Returns on U.S. Treasury Bills are based on a one-bill portfolio
constructed each month, containing the shortest-term bill having not less than
one month to maturity. The total return on the bill is the month end price
divided by the previous month-end price, minus one. Data up to 1976 is from the
U.S. Government Bond file at the University of Chicago's Center for Research in
Security Prices; the Wall Street Journal is the source thereafter. Inflation
rates are based on the CPI. Ibbotson calculates total returns in the same method
as the Funds.
MISCELLANEOUS
CERTAIN RECORD HOLDERS
The following indicates those persons who owned 5% or more of the
indicated class of shares. Information provided is as of July 2, 1996.
</TABLE>
<TABLE>
<CAPTION>
Percentage of
Shares held of
Name and Address Record Only
<S> <C>
NATIONS EQUITY INDEX FUND
None
NATIONS TAX-EXEMPT FUND
Primary A Shares
None
Investor A Shares
None
Investor B Shares
C. Robert Hanley 10.87%
2808 Tarflower Way
Naples, FL 33942
Michael S. Egan 8.66%
110 SE 6 St.
Box 70
Ft. Lauderdale, FL 33301-5000
Hare & Co., Bank of New York 7.33%
Attn: Stif/Master Note
One Wall Street, 5th Floor
New York, NY 10286
133
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Frank C. Wade 5.69%
5718 Westheimer, Ste. 600
Houston, TX 77057
Investor C Shares
James S. Summer and Edith E. Summer JTTEN 10.65%
8231 Stafford Mill Road
Oak Ridge, NC 27310
Diane Pearman 6.54%
Route 1, Box 277-D
Oscar Frye Road
Pinnacle, NC 27043
J. Steven Summer 5.80%
103 Saura Lane
Winston-Salem, NC 27107
Richard G. Summer 5.01%
8227 Stafford Mill Road
Oak Ridge, NC 27310
NATIONS GOVERNMENT MONEY MARKET FUND
Investor A Shares
USCI Inc Warrant Account 50.09%
P.O. Box 1645
Norcross, GA 30091
Ramon A. Alvarez 9.95%
2116 Great Falls Street
Falls Church, VA 22043
Norwest Bank Minnesota 5.68%
Trustee for Rockdale County/
C&D Charter
Attn: Polly Berquist-Corp. Trust
6th Street and Marquette Avenue
Minneapolis, MN 55479-0069
Investor B Shares
Norbert Dickman & 20.64%
Robert Dickman Trustees
Barbara Fasken 1995 Trust
303 West Wall Avenue, Ste. 1900
Midland, TX 79701
Hare & Co., Bank of New York 19.50%
Attn: Stif/Master Note
One Wall Street, 5th Floor
134
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
New York, NY 10286
Fasken Oil and Ranch Ltd. 18.35%
303 W. Wall Avenue, Ste. 1900
Midland, TX 79701
Peggy Ebright Dickson Trust 7.59%
303 West Wall, Ste. 1900
Midland, TX 79701
Liberty Investment Management Inc. 5.29%
2502 Rockey Point Drive, Suite 500
Tampa, FL 33607
Eli S. Jacobs 5.67%
4450 South Park Avenue, #1507
Chevy Chase, MD 20815
Investor C Shares
George Charles Zutes & 34.35%
Lucinda Zutes JTTEN
975 Bayshore Drive
Tarpon Springs, FL 34689-2403
George Charles Zutes 19.14%
975 Bayshore Drive
Tarpon Springs, FL 34689-2403
Charles H. Meyer & Elna R. Meyer 9.24%
Co-Trustees Charles R. Meyer Trust
Dated 10-27-95
1607 Frontier Dr.
Melbourne, FL 32940
Beulah W. Kelsey Trustee 6.88%
Dated December 10, 1992
Beulah W. Kelsey Revocable Trust
5 Whistling Swan
Hilton Head, SC 29928-5732
Sara Kraus 6.05%
8617 Camille Dr.
Potomac, MD 20854
Investor D Shares
Diane Stunbo & Thomas Petrarca & 99.62%
Thomas Jackson TTEES
Bond Cote Corporation
401(k) Retirement Plan
P.O. Box 729 Burgis Avenue
Polaski, VA 24301
135
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
NATIONS VALUE FUND
Investor C Shares
George H. Lumsden and 7.83%
Erika J. Lumsden JTTEN
16 Full Sweep Drive
Savannah, GA 31419-9330
NATIONS CAPITAL GROWTH FUND
Investor C Shares
Dean Witter Reynolds Cust. for 7.73%
Herbert Halperin
IRA Standard 6/14/93
6905 Nevis Road
Bethesda, MD 20817-4642
Dean Witter Reynolds Cust. for 5.88%
Dale Morris
IRA Standard 6/14/93
818 19th Avenue South
Nashville, TN 37203-3202
Patricia L. DeLorenzo 5.72%
7 Durban Place
Hilton Head, SC 29926
Janet Howard & 5.13%
Dr. Mark Clark TTEE
For The Tidewater Heart Specialists
Profit Sharing Plan DTD 1-1-94
2112-B Hartford Road
Hampton, VA 23666
NATIONS EMERGING GROWTH FUND
Investor A Shares
Ron Underwood & 5.04%
David Brown Trustees
Dallas Heart Group
401K Plan
8440 Walnut Hill Lane
Suite 700
Dallas, TX 75231
Investor C Shares
136
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Janet C. Howard & 15.37%
Dr. Mark Clark, TTEE
For The Tidewater Heart Specialists
Profit Sharing Plan
2112-B Hartford Road
Hampton, VA 23666
Dean Witter Reynolds Cust for 6.53%
William O. Kirker MD
IRA Standard 6/14/93
6130 Moss Spring Road
Columbia, SC 29209
Dean Witter Reynolds Cust. for 5.45%
Bernard D. Bouvier
IRA Rollover 6/14/93
633 Dolphin Road
Fripp Island
St. Helena Island, SC 29920-9517
Marian Brodsky 5.18%
7104 Millwood Drive
Bethesda, MD 20817-6145
Dean Witter Reynolds Cust. For 5.02%
William B. McGuire, Jr.
IRA Standard Dated 06/14/93
212 South Tryon Street, Suite 800
Charlotte, NC 28281-8174
NATIONS DISCIPLINED EQUITY FUND
Primary A Shares
PT NationsBank 11.86%
101 South Tryon Street
Charlotte, NC 28255
TR U/A Memorial Mission Hospital 7.84%
600 Peachtree Street, N.E.
7th Fl. - Performance Measurement
Atlanta, GA 30308-000
TR U/A Educational Foundation School Endowment 6.60%
P.O. Box 2446
Chapel Hill, NC 27514-0000
Flagstar Pension Plan 6.35%
203 East Main Street
Spartanburg, SC 29319-9979 5.36%
Investor A Shares
Jack B. Chadsey 11.10%
9050 Hammock Lake Drive
137
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Miami, FL 33156
Ron Underwood & David Brown TTEES 10.88%
Dallas Heart Group
401K Plan
8440 Walnut Hill Lane, Suite 700
Dallas, TX 75231
Zachary Taylor TTEE FBO 6.13%
Kleen Tex Industries Inc.
PSP & 401K Savings Plan and Trust
P.O. Box KTI
La Grange, GA 30241
Investor C Shares
Richard A. Royds TTEE 22.43%
Miller Family Trust
2900 South Tower Pennzoil Place
Houston, TX 77002
Frank L. Scofield, Trustee 11.77%
Dated January 4, 1976
FLSAB Trust
1411 West Avenue, Suite 200
Austin, TX 78701
Dean Witter Reynolds Cust. For 10.20%
Sidney W. Boone
IRA Rollover Dated 05/04/95
1411 E. 51st Street
Savannah, GA 31404-4037
Dean Witter Reynolds Cust. For 7.19%
Jean M. De Ru
IRA Standard DTD 06/14/93
2664 Sharondale Drive
Atlanta, GA 30305-3858
Mila K. Kennedy Cust. 5.49%
FBO Haydn Kennedy Collard UTMA TX
15751 Mapleview Circle
Dallas, TX 75230
John A. Hardin 5.26%
P.O. Box 751
Rock Hill, SC 29731-6751
BSDC Cust. Rollover IRA FBO 5.07%
Rosemary L. Waring
4601 Anson Ct.
Plano, TX 75024
138
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
NATIONS BALANCED ASSETS FUND
Investor C Shares
Carmine L. Dorio & Carmen Dorio JTTEN 17.75%
2580 Blythe Lane
Snellville, GA 30278
Haeson Mills TTE FBO 5.81%
Q Systems Inc.
401K Plan
5201 Leesburg Pike, Suite 700
Falls Church, VA 22041
Patricia Earle Lipscomb 5.64%
Estate of Patricia N. Earle
622 McDaniel Avenue
Greenville, SC 29605
NATIONS INTERMEDIATE MUNICIPAL BOND FUND
Investor A Shares
Mitchel Wong & 36.96%
Rose T. Wong JTWROS
1700 Stoneridge Terrace
Austin, TX 78746
Laverne A. Nebel 14.44%
Laverne A. Nebel Trust
DTD 11/04/92
2248 Kingfisher Lane
Clearwater, FL 34622-3322
Lonnie K. Ledbetter & 8.95%
Saundra Ledbetter JTWROS
P.O. Box 5687
Arlington, TX 76005
Helen Goh & 5.04%
Jeffrey M. Kadet JTWROS
c/o Arthur Anderson & Co. MOSCOW
69 W. Washington Street
Chicago, IL 60602
Investor C Shares
Neal S. Platzer and 51.37%
Jack W. Crosby JTTEN
Special Account
1410 Lost Ridge Circle
Seabrook, TX 77586-4514
Paul J. Rangel and 20.28%
139
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Kimberly K. Rangel JTTEN%
915 Kipp Avenue
Kemah, TX 77565
Charles W. Doolin 14.37%
3508 Harvard Avenue
Dallas, TX 75205
D. Keith Cobb 5.20%
2521 Del Lago Drive
Del Lago Isle
Ft. Lauderdale, FL 33316
Yun-Wu Chan and 5.13%
Jinn-Tyi Tung JTTEN
834 Fern Springs Court
Houston, TX 77062
Investor N Shares
WIN Communication Corp. 15.04%
ATTN: Bob Poole
6755 Jimmy Carter Boulevard
Norcross, GA 30071
Ellen Aston Paull 9.45%
1407 N. Weston Lane
Austin, TX 78733
Joanne B. Stegall 8.79%
517 Cameo Terrace
Chesapeake, VA 23320
Eleanor B. Calkins and 5.91%
W. D. Calkins JTTEN
9602 Baseline
Dallas, TX 75243
Mary Louise Foster 5.83%
700 Mease Plaza
Apt 232
Dunedin, FL 34698-6619
Jerry Ann Bell 5.75%
213 Lucille Lane
Toccoa, GA 30577
NATIONS MUNICIPAL INCOME FUND
Investor A Shares
Lloyd E. Raport 22.07%
5600 Wisconsin Ave., Apt. - 17E
Chevy Chase, MD 20815
140
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Irwin Grossman 5.72%
540 Preston Commons
8117 Preston Road
Dallas, TX 75225
Investor C Shares
Sunrise OK Tires 6.67%
c/o Vernon Hunter
1013 W. Sunrise Boulevard
Fort Lauderdale, FL 33311
Vernon E. Potter & 5.53%
Maxine Potter JT TEN
P.O. Box 820069
Dallas, TX 75382
Silvio Capoluongo & 5.47%
Diana McNaughton JT TEN
3031 Newark Street, N.W.
Washington, D.C. 20006-3342
Jake Schulhofer & 5.13%
William Schulhofer
Daniel Scott Schulfoer &
WD Schulfoer JT WROS
P.O. Box 314
Waynesville, NC 28786
Lynn Fain Friedman Trust 5.02%
DTD 7/5/94
Lynn Fain Friedman Trustee
5817 Midhill Street
Bethesda, MD 20817
NATIONS SHORT-TERM INCOME FUND
Investor A Shares
Graward General 23.09%
Attn: Kellye Norcross-Controller
P.O. Box 290909
Nashville, TN 37229-0909
Roger W. Sant 9.98%
1001 N 19th Street Suite 2000
Arlington, VA 22209
Dean Witter Reynolds Cust For 6.95%
Charles T. Bell
IRA Rollover Dated 6/14/93
503 Geiger Circle
141
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Key Largo, FL 33037
Gerald S. Gordon 5.84%
2307 Bluebonnet
Houston, TX 77030-3601
Investor C Shares
Virginia United Methodist Homes Inc. 20.65%
Attn: Cheryl H. Duff
7113 Three Chopt Road, Ste. 300
Richmond, VA 23226
Dr. George B. Richardson 14.06%
516 Azalea Lane
Florence, SC 29501
Roger W. Sant 12.48%
1001 N. 19th Street, St. 2000
Arlington, VA 22209
Industrial Marine Service, Inc. 10.11%
Attn: Bob Lewis
1301 Marsh Street
P.O. Box 1779
Norfolk, VA 23501
Wanda M. Shearer 6.17%
1065 Pine Top Road
Belton, SC 29627
The Lincolnshire Trust 5.32%
5208 Lincolnshire
Dallas, TX 75287
NATIONS DIVERSIFIED INCOME FUND
Investor A Shares
Dean Witter Reynolds Cust. for 6.39%
James T. Pearce IRA SEP 6/14/93
P.O. Box 1986
Greenville, SC 29602-1986
Howard M. Arnold 6.33%
9825 Conestoga Way
Potomac, MD 20854-4713
142
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Investor C Shares
None
NATIONS STRATEGIC FIXED INCOME FUND
Investor A Shares
Sheryl Isaacs TTREE 11.34%
Good Buy Sportswear
401K Saving Plan
2400 31st St. S.
St. Petersburg, FL 33712
Rental Uniform of Florence 6.64%
P.O. Box 12410
Florence, SC 29504-0410
Investor C Shares
Patricia Earle Lipscomb Per Rep. 28.36%
Estate of Patricia N. Earle
622 McDaniel Ave.
Greenville, SC 29605
BSDT Cust. IRA FBO 26.26%
James A. Blanchard
9 Las Brisas
Austin, TX 78746
Alton J. Turley & 14.09%
Christine Turley JTTEN
55 Swan Lake Road
Stockbridge, GA 30281
John M. Lewis & 8.09%
Robert V. Dipauli &
John H. Vaughan TTEES FBO
St. Joe Communications Inc.
Employees Salary Deferral Plan
502 Fifth Street
Port St. Joe, FL 32456
Mary Jane Bakery Salesman Assoc. 6.85%
ATTN: Frank Rollins
1948 Country Manor Lane
Virginia Beach, VA 23456
NationsBank of Florida NA Succ. TTEE 6.42%
FBO William E. Clark
TUA DTD 8-8-95
ATTN SAS/06050230066100
143
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
PO Box 831575
Dallas, TX 75283-1575
Investor N Shares
Dean Witter Reynolds Cust for 8.38%
Robert A. Pierce
IRA Rollover 6/14/93
10 Lavington Ct.
Columbia, SC 29209-1944
NATIONS FLORIDA INTERMEDIATE MUNICIPAL BOND FUND
Investor A Shares
Charlotte G. Bowen 10.23%
1371 South Ocean Blvd.
Apt. 915
Pompano Beach, FL 33062
P. McNeil 9.69%
2310 Del Mar Island
Fort Lauderdale, FL 33301
Lillian J. Clayman and 8.21%
Charles E. Clayman JTWROS
6161 NW 2nd Ave #625
Boca Raton, FL 33487
Janice Quale Revocable Trust 6.12%
U/A DTD 2/23/87
c/o NorWest Investment Management & Trust
Attn: C. Kaehler
6th & Marquette Ave.
Minneapolis, MN 55479-0039
Investor C Shares
Bertram C. Ellison and 6.15%
Joline M. Ellison JTTEN
651 NW Hiatus Road
Plantation, FL 33325-2010
Louise D. Lee 5.69%
408 SE 9 Court
Fort Lauderdale, FL 33316
Investor N Shares
None
NATIONS FLORIDA MUNICIPAL BOND FUND
Investor A Shares
Jacqueline Bailes, Charles E. Bailes, Jr., 58.87%
144
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Charles E. Bailes III and J.D. Bailes
Bailes Investment Account
6212 Dartmoor Ct.
Orlando, FL 32819
Robert P. Cornelssen, Trustee 25.25%
Robert P. Cornelssen Trust
U/A DTD 4/18/91
1868 Shore Drive South
Apartment 401
St. Petersburg, FL 33707
Harold A. Dargel and 6.08%
Phyllis A. Dargel Co-TTEES
Harold A. Dargel REV TR DTD 10-20-89
5721 SW 16th Court
Plantation, FL 33317-5901
Arthur W. Ihle, Trustee 5.44%
Arthur W. Ihle REVOC LIV Trust
DTD 11-21-94
910 Dogwood Dr., Apt. 447
Delray Beach, FL 33483
Investor C Shares
None
NATIONS GEORGIA INTERMEDIATE MUNICIPAL BOND FUND
Investor A Shares
Lyles W. Sanders & 16.05%
Mary C. Sanders, JTTEN
2305 Welton Place
Dunwoody, GA 30338
Investor C Shares
Letty C. Cagle and 20.16%
Douglas Cagle, JTTEN
8592 Roswell Road, Apt. 318
Atlanta, GA 30350
Ruth D. Lautz TTEE 8.47%
Ruth D. Lautz Revocable Trust
3046 Shinnecock Hills
Duluth, GA 30136
Arthur R. Lautz TTEE 6.61%
Arthur R. Lautz Revocable Trust
3046 Shinnecock Hills
Duluth, GA 30136
145
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Charles D. Davidson and 6.15%
Judith L. Davidson JTTEN
370 Rosalie Ct.
Alpharetta, GA 30202
Investor N Shares
Edward J. Derst, Jr. Trustee 33.32%
U/A of Edward J. Derst, Jr.
Trust Agreement DTD 11/15/88
258 Varn Drive
Savannah, GA 31403
NATIONS GEORGIA MUNICIPAL BOND FUND
Primary A Shares
None
Investor A Shares
Lowell A. Young and 60.20%
MaryAnn E. Young JT-TEN
4031 Oakridge Bend
Valdosta, GA 31602
Enzor Leroy Bechman 22.72%
2314 Golfcourse Dr.
Albany, GA 31707
Monte L. Poole and 16.90%
Venetia C. Poole JTWROS
1344 Hidden Hills Parkway
Stone Mountain, GA 30088
Investor C Shares
F. Wayne Weaver and 96.49%
Edith T. McWaters JTTEN
1576 Bethsaida Road
Riverdale, GA 30296
146
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
NATIONS MARYLAND INTERMEDIATE MUNICIPAL BOND FUND
Investor A Shares
Robert Gladstone & 16.50%
Leslie Gladstone JTTEN
2468 Belmont Road, N.W.
Washington, D.C. 20008-1610
Investor C Shares
Margot H. Hahn 9.00%
815 Connecticut Avenue, N.W., Suite 601
Washington, D.C. 20006-4004
Douglas D. Van Riper & 5.36%
Mary E. Van Riper JTTEN
10513 Patuxent Ridge Way
Laurel, MD 20723
William Bobrow 5.17%
Miriam Bobrow JTTEN
1008 East Boxhill Drive
Kensington, MD 20895
Investor N Shares
Laurel R.G. Moreno, Trustee 5.44%
U/Deed DTD 10/14/91
FBO Miro Gudelsky
10808 Riverwood Drive
Potomac, MD 20854-1334
NATIONS MARYLAND MUNICIPAL BOND FUND
Primary A Shares
None
Investor A Shares
Carol C. House & 37.60%
Peter W. House JTWROS
4210 Leeward Place
Bethesda, MD 20816
Thomas A. Beach & 23.22%
Joan A. Beach JTWROS
P.O. Box 1294
Rockville, MD 20849-1294
Raymond A. Turetsky and 14.84%
Bess H. Turetsky JTTEN
11220 Woodson Avenue
Kensington, MD 20895-1427
Charles E. Chlan 13.85%
147
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Sole Proprietorship
7200 Bel Air Road
Baltimore, MD 21206
Dona L. Lechliter and 7.31%
Stephen C. Lechliter JTTEN
2921 N. Leisure World Blvd., Apt. 427
Silver Spring, MD 20906
Investor C Shares
None
NATIONS NORTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
Investor A Shares
Jerry Wordsworth 21.23%
P.O. Box 800
Rocky Mount, NC 27802
W. Frank Dowd, Jr. 7.82%
P.O. Box 35430
Charlotte, NC 28235-5430
148
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Wayne Joyce and 7.60%
Julia Y. Joyce JTTEN
2694 Merry Oaks Trail
Winston-Salem, NC 27103
Elizabeth H. Miller 7.34%
P.O. Box 68
Tuxedo, NC 28784
Investor C Shares
Barbara B. Coyner 18.36%
513 Lake Boone Trail
Raleigh, NC 27608-1027
J. Robert Stout & 13.19%
Maggie Smith Stout JTTEN
P.O. Box 35343
Greensboro, NC 27425-5343
W. Joseph Selvia and 8.50%
Jay P. Selvia JTTEN
5730 Phillips Bridge Road
Winston-Salem, NC 27104-3323
Anna B. Steele 8.19%
2041 Georgia Avenue
Winston-Salem, NC 27104
William F. Cox 8.17%
3225 Bermuda Village
Advance, NC 27006-9478
Jean Parker Moore 6.07%
2721 Spring Garden Road
Winston-Salem, NC 27106
Roger W. Simmons and 5.01%
Mary R. Simmons JTTEN
150 River Hill Drive
Advance, NC 27006
Investor N Shares
James E. Smith and 5.49%
Bettie T. Smith JTTEN
18227 Capstan Greens Road
Cornelius, NC 28031
149
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
NATIONS NORTH CAROLINA MUNICIPAL BOND FUND
Primary A Shares
None
Investor A Shares
Barbara Bartow Church 22.66%
1535 Providence Road
Charlotte, NC 28207-2627
Harlan O. Greene and 18.47%
Raydell S. Greene JTTEN
384 Hayes Wellborn Road
Deep Gap, NC 28618-9738
Andrew M. Silton and 13.37%
Margaret Kanze Silton JTWROS
5314 Germaine Terrace
Charlotte, NC 28226
Byron E. Gross & 7.11%
Pauline S. Gross JTWROS
3768 Osceola Road
Elon College, NC 27244-9784
Susan E. Bales and 6.89%
Audrey D. Bales JTTEN
Box 712
Wingate, NC 28174
L. Elwood Wight 6.47%
Margaret C. Wright JTWROS
1113 Devonshire Dr.
New Bern, NC 28562
Investor C Shares
Eugene G. Agres 86.20%
611 Oyster Bay Dr.
Sunset Beach, NC 28468
150
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
NATIONS SOUTH CAROLINA INTERMEDIATE MUNICIPAL BOND FUND
Investor A Shares
James T. Pearce 16.05%
P.O. Box 1986
Greenville, SC 29602-1986
Joseph F. Rice 8.05%
777 Bradburn Drive
Mt. Pleasant, S.C. 29464-5114
James Bloor Trustee 6.07%
Revocable Trust NA 8/19/92
James Bloor Trust
51 Bird Song Way
Hilton Head, S.C. 29926-1364
Investor C Shares
Anne M. Inman 8.87%
1829 Senate St. Apt. 11-A
Columbia, SC 29201
Helena B. Clark 5.42%
324 Broad River Drive
Santee, SC 29142-9301
Investor N Shares
None
NATIONS SOUTH CAROLINA MUNICIPAL BOND FUND
Investor A Shares
Donna R. Cart 41.58%
1140 Partridge Road
Spartanburg, SC 29302-3328
James C. Cuppia & 30.64%
Doris W. Cuppia TTEES
Jerome C. Cuppia Jr. Trust DTD 10/28/87
8 Outerbridge Circle
Hilton Head Island, SC 29926-2916
Doris White Cuppia TTEE FBO 9.84%
Doris White Cuppia TR DTD
10-28-87 by Doris White Cuppia
8 Outerbridge Circle
Hilton Head Island, SC 29926
Adina Allen 5.74%
1283 Dogwood Dr. NE
Orangeburg, SC 29115
151
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Investor C Shares
None
NATIONS TENNESSEE INTERMEDIATE MUNICIPAL BOND FUND
Investor A Shares
Bob G. Long 15.99%
P.O. Box 266
Hermitage, TN 37076
Marshall T. Polk, III 14.23%
P.O. Box 90148
Nashville, TN 37209
Joseph L. DiLorenzo 7.28%
4400 Belmont Park Ter. #249
Nashville, TN 37215
Inman Construction Corp. 5.88%
Attn: Frank Inman Jr.
5100 Poplar Ave., Suite 1210
Memphis, TN 38137
Investor C Shares
None
Investor N Shares
John O. Colton 15.54%
6211 Jocelyn Hollow Road
Nashville, TN 37205-3213
Robert R. Hayes and 10.41%
Vira E. Hayes JTTEN
400 Bryants Lane
Woodbury, TN 37190-1641
NATIONS TENNESSEE MUNICIPAL BOND FUND
Primary A Shares
Jerry L. Benefield & 9.15%
Evelyn S. Benefield
4036 Barfield Road
Murfreesboro, TN 37129-5719
Miriam F. Hildebrand 7.08%
884 Edmondson Pike
Brentwood, TN 37027
Investor A Shares
None
Investor C Shares
Frank W. Condurelis and 93.42%
152
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Jane E. Condurelis JTTEN
806 Brentview Drive
Nashville, TN 37220
Investor N Shares
Miriam F. Hildebrand 9.80%
884 Edmondson Pike
Brentwood, TN 37027
NATIONS TEXAS INTERMEDIATE MUNICIPAL BOND FUND
Investor A Shares
MOTCO 20.83%
P.O. Box 17001-Trust
San Antonio, TX 78217
Harriet G. Wolf 19.49%
2520 Old Gate Road
San Antonio, TX 78230
James Bradley Curlee Trustee 17.82%
For the Homer Hill Shaw Trust
6428 Tulip Lane
Dallas, TX 75230
Steven F. Beard Jr. 11.64%
P.O. Box 428
Spicewood, TX 78669
Mary Bradfield Briggs 5.44%
4410 Three Oaks Drive
Arlington, TX 76016-2351
153
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Investor C Shares
Orsinger Investments Ltd. 99.60%
2206 Camelback Drive
San Antonio, TX 78209-4262
Investor N Shares
Montine T. Wisdom 9.31%
6335 W. Northwest Hwy. #1318
Dallas, TX 75225-3533
James Robert Mallory and 8.77%
Faith K. Mallory JTTEN
2400 Winton Terrace East
Ft. Worth, TX 76109
Oliver Roofing Systems 6.36%
906-B Justin Lane
P.O. Box 180191
Austin, TX 78718
NATIONS TEXAS MUNICIPAL BOND FUND
Primary A Shares
None
Investor A Shares
MOTCO 61.15%
P.O. Box 17001-Trust
San Antonio, TX 78217
Liberto Investments Ltd. 14.46%
Partnership
621 S. Flores St.
San Antonio, TX 78204-1220
Jeanette Dorman and 7.63%
Taylor Dorman JTWROS
Route 13, Box 6089
Lufkin, TX 75901
Carolyn A. Lee and 6.96%
Philip A. Lee JTTEN
P.O. Box 7917
Horseshoe Bay, TX 78657
Shirley A. Wagner 5.97%
3002 San Paula
Dallas, TX 75228
Investor C Shares
None
154
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
NATIONS VIRGINIA INTERMEDIATE MUNICIPAL BOND FUND
Investor A Shares
None
NATIONS VIRGINIA MUNICIPAL BOND FUND
Investor A Shares
William P. Moore & 32.07%
Vera W. Moore JTTEN
P.O. Box 1270
Hopewell, VA 23860
Rodney M. Carlson and 9.64%
Joyce L. Carlson JTTEN
3608 South Creek Ct.
Chesapeake, VA 23325
Rebecca C. Bell 9.05%
1092 Oaklawn Drive
Culpepper, VA 22701
Jessie E. Spells
14927 Boydell Dr. 7.00%
Centreville, VA 22020-1534
Lester W. Morris
c/o C. Hunter Jones 6.93%
308 Hunter Street
Ashland, VA 23005-1910
Creola N. Shearin
2205 Parkside Ave. 6.77%
Richmond, VA 23228
Investor C Shares
Russell E. Herring
P.O. Box 568 6.20%
Crozet, VA 22932
NATIONS SHORT-TERM MUNICIPAL INCOME FUND
Investor A Shares
Carl W. Cheek 25.57%
120 North Charles Street
Red Lion, PA 17356
Ralph Jerry Parker, Jr. 14.69%
500 Forest Avenue
Richmond, VA 23229-6808
Richard H. Kristinik 14.20%
155
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
10 W Terrace
Houston, TX 77007
Mitchel Wong &
Rose T. Wong JTWROS 11.96%
1700 Stoneridge Terrace
Austin, TX 78746
Jerome Dobson 11.35%
Bridget Dobson JTTEN
3490 Piedmont Road
Suite 1206
Atlanta, GA 30305
Investor C Shares
Carl W. Cheek 34.69%
120 North Charles Street
Red Lion, PA 17356
Steven L. Feder & 25.33%
Thomas H. Lindsey JTWROS
3001 NE 19th St.
Fort Lauderdale, FL 33305
Louis J. Scott & 10.45%
Leslie G. Scott JTWROS
9337B Katy Fwy, Ste. 329
Houston, TX 77024
Jay L. Willmann and 6.88%
Catherine B. Willmann JTTEN
2918 Kassarine Pass
Austin, TX 78704-4655
Ilah Coffee Merriman 5.70%
#8 Rue Du Lac
Dallas, TX 75230-0000
Investor N Shares
William L. Spadoni and 7.28%
Julia S. Spadoni JTTEN
P.O. Box 1019
Myrtle Beach, SC 29578-1019
James H. Sparks and 6.60%
Karen M. Sparks JTTEN
4121 Roenker Lane
Virginia Beach, VA 23455
James D. Yopp, Jr. & 5.44%
Johanna F. Yopp JTTEN
1095 Fieldwood Lane
156
<PAGE>
Percentage of
Shares held of
Name and Address Record Only
Winston Salem, NC 27106-5863
NATIONS SHORT-INTERMEDIATE GOVERNMENT FUND
Investor A Shares
Burgess Pigment Co.
P.O. Box 349 Deck Blvd. 5.82%
Sandersville, GA 31082
</TABLE>
As of July 2, 1996, NationsBank Corporation and its affiliates owned of
record more than 25% of the outstanding shares of the Trust acting as agent,
fiduciary, or custodian for its customers and may be deemed a controlling person
of the Trust under the 1940 Act.
157
<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. Debt rated BB has less
near-term vulnerability to default than other speculative issues.
However, it faces major ongoing uncertainties or exposure to adverse
business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. Debt
rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal.
To provide more detailed indications of credit quality, the AA, A and
BBB, BB and B ratings may be modified by the addition of a plus or minus sign to
show relative standing within these major rating categories.
The following summarizes the highest six ratings used by Moody's
Investors Service, Inc. ("Moody's") for corporate and municipal bonds. The first
four denote investment grade securities.
Aaa - Bonds that are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
A-1
<PAGE>
Aa - Bonds that are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Bonds that are rated A possess many favorable investment attributes
and are to be considered upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa - Bonds that are rated Baa are considered medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba - Bonds that are rated Ba are judged to have speculative elements;
their future cannot be as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not as well
safeguarded during both good times and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds that are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Moody's applies numerical modifiers (1, 2 and 3) with respect to
corporate bonds rated Aa through B. The modifier 1 indicates that the bond being
rated ranks in the higher end of its generic rating category; the modifier 2
indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks
in the lower end of its generic rating category. With regard to municipal bonds,
those bonds in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols 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.
A-2
<PAGE>
BBB - Bonds that are rated BBB have below average protection factors but
still are considered sufficient for prudent investment. Considerable
variability in risk 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.
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 following summarizes the two highest ratings used by Moody's for
short-term municipal notes and variable-rate demand obligations:
A-3
<PAGE>
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 three highest rating categories of D&P for short-term debt, each of
which denotes that the securities are investment grade, are D-1, D-2, and D-3.
D&P employs three designations, D-1+, D-1 and D-1-, within the highest rating
category. D-1+ indicates highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is judged to be "outstanding, and safety is just below
risk-free U.S. Treasury short-term obligations." D-1 indicates very high
certainty of timely payment. Liquidity factors are excellent and supported by
good fundamental protection factors. Risk factors are considered to be minor.
D-1- indicates high certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk factors are very
small. D-2 indicates good certainty of timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small. D-3 indicates satisfactory liquidity and other protection factors which
qualify the issue as investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
The following summarizes the two highest rating categories used by
Fitch for short-term obligations 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.
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For commercial paper, D&P uses the short-term ratings described above.
For commercial paper, Fitch uses the short-term 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 is the four investment grade ratings used by BankWatch
for long-term debt:
AAA - The highest category; indicates ability to repay principal and
interest on a timely basis is extremely high.
AA - The second highest category; indicates a very strong ability to repay
principal and interest on a timely basis with limited incremental risk
versus issues rated in the highest category.
A - The third highest category; indicates the ability to repay principal
and interest is strong. Issues rated "A" could be more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
BBB - The lowest investment grade category; indicates an acceptable
capacity to repay principal and interest. Issues rated "BBB" are, however,
more vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
Long-term debt ratings may include a plus (+) or minus(-) sign to
indicate where within a category the issue is placed.
The BankWatch short-term ratings apply to commercial paper, other
senior short-term obligations and deposit obligations of the entities to which
the rating has been assigned.
The BankWatch short-term ratings specifically assess the likelihood of
an untimely payment of principal or interest.
TBW-1 -- The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 -- The second highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative degree
of safety is not as high as for issues rated "TBW-1".
TBW-3 -- The lowest investment grade category; indicates that while more
susceptible to adverse developments (both internal and external) than
obligations with higher ratings, capacity to service principal and
interest in a timely fashion is considered adequate.
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TBW-4 -- The lowest rating category; this rating is regarded as
non-investment grade and therefore speculative.
The following summarizes the four highest long-term debt ratings used
by IBCA Limited and its affiliate, IBCA Inc. (collectively "IBCA"):
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk significantly.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is
substantial. Adverse changes in business, economic or financial conditions
may increase investment risk albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong,
although adverse changes in business, economic or financial conditions may
lead to increased investment risk.
BBB--Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest
is adequate, although adverse changes in business, economic or financial
conditions are more likely to lead to increased investment risk than for
obligations in other categories.
A plus or minus sign may be appended to a rating below AAA to denote
relative status within major rating categories.
The following summarizes the two highest short-term debt ratings used by IBCA:
A1+ - When issues posses a particularly strong credit feature, a rating of
A1+ is assigned.
A1 - Obligations supported by the highest capacity for timely repayment.
A2 -- Obligations supported by a good capacity for timely repayment.
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SCHEDULE B
ADDITIONAL INFORMATION CONCERNING
OPTIONS & FUTURES
As stated in the Prospectus, each 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 the 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
losses 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
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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.
A public market now exists in futures contracts covering various
financial instruments including long-term United States Treasury Bonds and
Notes; Government National Mortgage Association (GNMA) modified pass-through
mortgage-backed securities; three-month United States Treasury Bills; and
ninety-day commercial paper. The 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 investment adviser ("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
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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.
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
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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 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).
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ANTICIPATORY PURCHASE HEDGE: BUY THE FUTURE
HEDGE OBJECTION: PROTECT AGAINST INCREASING PRICE
Portfolio Futures
-Day Hedge is Placed-
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted-
Buy Equity Portfolio with Sell 1 Index Futures at 130
Actual Cost = $65,000 Value of Futures = $65,000/Contract
Increase in Purchase Price =$2,500 Gain on Futures = $2,500
HEDGING A STOCK PORTFOLIO: SELL THE FUTURE
HEDGE OBJECTIVE: PROTECT AGAINST DECLINING
VALUE OF THE PORTFOLIO
Factors:
Value of Stock Portfolio = $1,000,000
Value of Futures Contract = 125 x $500 = $62,500
Portfolio Beta Relative to the Index - 1.0
Portfolio Futures
-Day Hedge is Placed --
Anticipate Selling $1,000,000 Sell 16 Index Futures at 125
Equity Portfolio Value of Futures = $1,000,000
-Day Hedge is Lifted --
Equity Portfolio-Own Buy 16 Index Futures at 120
Stock with Value = $960,000 Value of Futures = $960,000
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Loss in Portfolio Value = $40,000 Gain on Futures = $40,000
If, however, the market moved in the opposite direction, that is,
market value decreased and the 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.
ANTICIPATORY PURCHASE HEDGE: BUY THE FUTURE
HEDGE OBJECTIVE: PROTECT AGAINST INCREASING PRICE
Portfolio Futures
-Day Hedge is Placed--
Anticipate Buying $62,500 Buying 1 Index Futures at 125
Equity Portfolio Value of Futures = $62,500/Contract
-Day Hedge is Lifted--
Buy Equity Portfolio with Sell 1 Index Futures at 120
Actual Cost - $60,000 Value of Futures = $60,000/Contract
Decrease in Purchase Price = $2,500 Loss on Futures = $2,500/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
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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
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 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, and 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 the
securities being hedged has moved in an unfavorable direction, the Fund would be
in a better position than if it had not hedged at all. If the price of the
securities being hedged has moved in a favorable direction, this
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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
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.
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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 losses on the futures
contract. However, as described above, there is no guarantee that the price of
the securities will in fact correlate with the price movements in the futures
contract and thus provide an offset on a futures contract.
Further, it should be noted that the liquidity of a secondary market in
a futures contract may be adversely affected by "daily price fluctuation limits"
established by commodity exchanges which limit the amount of fluctuation in a
futures contract price during a single trading day. Once the daily limit has
been reached in the contract, no trades may be entered into at a price beyond
the limit, thus preventing the liquidation of open futures positions.
Successful use of futures by a 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
losses 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
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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). 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.
VI. Accounting and Tax Treatment.
Accounting for futures contracts and options will be in accordance with
generally accepted accounting principles.
Generally, futures contracts and options on futures contracts held by a
Fund at the close of the Fund's taxable year will be treated for Federal income
tax purposes as sold for their fair market value on the last business day of
such year, a process known as "marking-to-market." Forty percent (40%) of any
gains or loss resulting from such constructive sale will be treated as
short-term capital gain or loss and sixty percent (60%) of such gain or loss
will be treated as long-term capital gain or loss without regard to the length
of time the Fund holds the futures contract or option (the "40%-60% rule"). The
amount of any capital gain or loss actually realized by a Fund in a subsequent
sale or other disposition of those futures contracts will be adjusted to reflect
any capital gain or loss taken into account by the Fund in a prior year as a
result of the constructive sale of the contracts and options. With respect to
futures contracts to sell or options which will be regarded as parts of a "mixed
straddle" because their values fluctuate inversely to the values of specific
securities held by the Fund, losses as to such contracts to sell or options will
be subject to certain loss deferral rules which limit the amount of loss
currently deductible on either part of the straddle to the amount thereof which
exceeds the unrecognized gain (if any) with respect to the other part of the
straddle, and to certain wash sales regulations. Under short sales rules, which
also will be applicable, the holding period of the securities forming part of
the straddle will (if they have not been held for the long-term holding period)
be deemed not to begin prior to termination of the straddle. With respect to
certain futures contracts and options, deductions for interest and carrying
charges will not be allowed. Notwithstanding the rules described above, with
respect to futures contracts to sell which are properly identified as such and
certain options, a Fund may make an election which will except (in whole or in
part) those identified futures contracts or options from being treated for
Federal income tax purposes as sold on the last business day of the Fund's
taxable year, but gains and losses will be subject to such short sales, wash
sales, loss deferral rules and the requirement to capitalize interest and
carrying charges. Under temporary regulations, a Fund would be allowed (in lieu
of the foregoing) to elect to either (1) offset gains or losses from portions
which are part of a mixed straddle by separately identifying each mixed straddle
to which such treatment applies, or (2) establish a mixed straddle account for
which gains and losses would be recognized and offset on a periodic basis during
the taxable year. Under either election, the 40%-60% rule will apply to the net
gain or loss attributable to the futures contracts, but in the case of a mixed
straddle account election, not more than 50% of any net gain may be treated as
long-term and not more than 40% of any net loss may be treated as short-term.
B-10
<PAGE>
Certain foreign currency contracts entered into by a Fund may be
subject to the "marking-to-market" process and the 40%-60% rule in a manner
similar to that described in the preceding paragraph for futures contracts and
options on futures contracts. To receive such Federal income tax treatment, a
foreign currency contract must meet the following conditions: (1) the contract
must require delivery of a foreign currency of a type in which regulated futures
contracts are traded or upon which the settlement value of the contract depends;
(2) the contract must be entered into at arm's length at a price determined by
reference to the price in the interbank market; and (3) the contract must be
traded in the interbank market. The Treasury Department has broad authority to
issue regulations under the provisions respecting foreign currency contracts.
Other foreign currency contracts entered into by a Fund may result in the
creation of one or more straddles for Federal income tax purposes, in which case
certain loss deferral, short sales, and wash sales rules and the requirement to
capitalize interest and carrying charges may apply.
As described more full in the section of the SAI entitled "Additional
Information Concerning Taxes," in order to qualify as a regulated investment
company under the Code a Fund must derive less than 30% of its gross income from
investments held for less than three months. With respect to futures contracts
and other financial instruments subject to the marking-to-market rules, the
Internal Revenue Service has ruled in private letter rulings that a gain
realized from such a futures contract or financial instrument will be treated as
being derived from a security held for three months or more (regardless of the
actual period for which the contract or instrument is held) if the gain arises
as a result of a constructive sale under the marking-to-market rules, and will
be treated as being derived from a security held for less than three months only
if the contract or instrument is terminated (or transferred) during the taxable
year (other than by reason of marking-to-market) and less than three months have
elapsed between the date the contract or instrument is acquired and the
termination date. In determining whether the 30% test is met for a taxable year,
increases and decreases in the value of each Fund's futures contracts and other
investments that qualify as part of a "designated hedge," as defined in the
Code, may be netted.
<PAGE>
SCHEDULE C
ADDITIONAL INFORMATION CONCERNING
MORTGAGE-BACKED SECURITIES
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent an ownership interest in a pool of
residential mortgage loans. These securities are designed to provide monthly
payments of interest and principal to the investor. The mortgagor's monthly
payments to his/her lending institution are "passed-through" to an investor.
Most issuers or poolers provide guarantees of payments, regardless of whether or
not the mortgagor actually makes the payment. The guarantees made by issuers or
poolers are supported by various forms of credit, collateral, guarantees or
insurance, including individual loan, title, pool and hazard insurance purchased
by the issuer. There can be no assurance that the private issuers or poolers can
meet their obligations under the policies. Mortgage-backed securities issued by
private issuers or poolers, whether or not such securities are subject to
guarantees, may entail greater risk than securities directly or indirectly
guaranteed by the U.S. Government.
Interests in pools of mortgage-backed securities differ from other
forms of debt securities, which normally provide for periodic payment of
interest in fixed amounts with principal payments at maturity or specified call
dates. Instead, these securities provide a monthly payment which consists of
both interest and principal payments. In effect, these payments are a
"pass-through" of the monthly payments made by the individual borrowers on their
residential mortgage loans, net of any fees paid. Additional payments are caused
by repayments resulting from the sale of the underlying residential property,
refinancing or foreclosure net of fees or costs which may be incurred. Some
mortgage-backed securities are described as "modified pass-through." These
securities entitle the holders to receive all interest and principal payments
owed on the mortgages in the pool, net of certain fees, regardless of whether or
not the mortgagors actually make the payments.
Residential mortgage loans are pooled by the Federal Home Loan Mortgage
Corporation (FHLMC). FHLMC is a corporate instrumentality of the U.S. Government
and was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. Its stock is owned by
the twelve Federal Home Loan Banks. FHLMC issues Participation Certificates
("PC's"), which represent interests in mortgages from FHLMC's national
portfolio. FHLMC guarantees the timely payment of interest and ultimate
collection of principal.
The Federal National Mortgage Association (FNMA) is a Government
sponsored corporation owned entirely by private stockholders. It is subject to
general regulation by the Secretary of Housing and Urban Development. FNMA
purchases residential mortgages from a list of approved sellers/servicers which
include state and federally-chartered savings and loan
C-1
<PAGE>
associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed
as to timely payment of principal and interest by FNMA.
The principal Government guarantor of mortgage-backed securities is the
Government National Mortgage Association (GNMA). GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
GNMA is authorized to guarantee, with the full faith and credit of the U.S.
Government, the timely payment of principal and interest on securities issued by
approved institutions and backed by pools of FHA-insured or VA-guaranteed
mortgages.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Pools
created by such non-governmental issuers generally offer a higher rate of
interest than Government and Government-related pools because there are no
direct or indirect Government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance purchased by the issuer. The insurance and guarantees are
issued by Governmental entities, private insurers, and the mortgage poolers.
There can be no assurance that the private insurers or mortgage poolers can meet
their obligations under the policies.
The 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.
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.
C-2
<PAGE>
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.
C-3
<PAGE>
NATIONS FUND TRUST
FILE NOS. 2-97817; 811-4305
PART C
OTHER INFORMATION
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A:
Per Share Income and Capital Changes
Included in Part B:
Audited Financial Statements for Nations Government Money Market, Nations
Tax Exempt, Nations Value, Nations Capital Growth, Nations Emerging Growth,
Nations Disciplined Equity, Nations Equity Index, Nations Managed Index,
Nations Balanced Assets, Nations Short-Intermediate Government, Nations
Short-Term Income, Nations Diversified Income, Nations Strategic Fixed
Income, Nations Short-Term Municipal Income, Nations Municipal Income,
Nations Intermediate Municipal Bond, Nations Florida Intermediate Municipal
Bond, Nations Georgia Intermediate Municipal Bond, Nations Maryland
Intermediate Municipal Bond, Nations North Carolina Intermediate Municipal
Bond, Nations South Carolina Intermediate Municipal Bond, Nations Tennessee
Intermediate Municipal Bond, Nations Texas Intermediate Municipal Bond,
Nations Virginia Intermediate Municipal Bond, Nations Florida Municipal
Bond, Nations Georgia Municipal Bond, Nations Maryland Municipal Bond,
Nations North Carolina Municipal Bond, Nations South Carolina Municipal
Bond, Nations Tennessee Municipal Bond, Nations Texas Municipal Bond Fund
and Nations Virginia Municipal Bond Funds:
Schedule of Investments for March 31, 1996
Statements of Assets and Liabilities for March 31, 1996
Statements of Operations for the fiscal period ended March 31, 1996
Statements of Changes in Net Assets for the fiscal period ended
March 31, 1996 and the year ended November 30, 1995 Schedule of
Capital Stock Activity for the fiscal period ended March 31, 1996
Notes to Financial Statements
Report of Independent Accountants, dated May 17, 1996
1
<PAGE>
Included in Part C:
Consent of Independent Accountants
(b) Exhibits
Exhibit
Number
(1)(a) Declaration of Trust dated May 6, 1985, is incorporated by
reference to its Registration Statement, filed May 17, 1985.
(1)(b) Certificate pertaining to classification of shares dated May 17,
1985, is incorporated by reference to its Registration Statement,
filed May 17, 1985.
(1)(c) Amendment dated July 27, 1987 to Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 4 to
its Registration Statement filed January 29, 1988.
(1)(d) Amendment dated September 13, 1989 to Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 8 to
its Registration Statement filed March 16, 1990.
(1)(e) Certificate pertaining to classification of shares dated August
24, 1990, is incorporated by Post-Effective Amendment No. 11,
filed September 26, 1990.
(1)(f) Certificate and Amendment to Declaration of Trust dated November
26, 1990 is incorporated by reference to Post-Effective Amendment
No. 13, filed January 18, 1991.
(1)(g) Certificate pertaining to classification of shares dated July 18,
1991 is incorporated by reference to Post-Effective Amendment No.
16, filed July 23, 1991.
(1)(h) Amendment dated March 26, 1992 to Declaration of Trust is
incorporated by reference to Post-Effective Amendment No. 19,
filed March 30, 1992.
(1)(i) Certificate relating to classification of shares is incorporated
by reference to Amendment No. 19, filed March 30, 1992.
(1)(j) Amendment to Declaration of Trust dated September 21, 1992, is
incorporated by reference to Post-Effective Amendment No. 23,
filed December 23, 1992.
(1)(k) Certificate relating to the classification of shares and an
Amendment to the Declaration of Trust dated March 26, 1993, is
incorporated by reference to Post-Effective Amendment No. 27,
filed May 27, 1993.
2
<PAGE>
(1)(l) Certificate relating to the establishment of money market funds'
Investor C shares dated July 8, 1993, is incorporated by
reference to Post-Effective Amendment No. 29, filed September 30,
1993.
(1)(m) Certificate relating to the establishment of the Equity Index,
Short-Term Municipal Income, Florida Municipal Bond, Georgia
Municipal Bond, North Carolina Municipal Bond, South Carolina
Municipal Bond, Tennessee Municipal Bond, Texas Municipal Bond
and Virginia Municipal Bond Funds dated September 22, 1993, is
incorporated by reference to Post-Effective Amendment No. 29,
filed September 30, 1993.
(1)(n) Certificate relating to the establishment of the Special Equity
Fund is incorporated by reference to Post-Effective Amendment No.
30, filed December 1, 1993.
(1)(o) Certificate relating to the redesignation of Investor B Shares
and Investor C Shares of the non-money market funds to "Investor
C Shares" and "Investor N Shares," respectively, is incorporated
by reference by Post-Effective Amendment No. 32, filed March 29,
1994.
(1)(p) Certificate relating to the Classification of Shares of the Money
Market Fund and the Tax Exempt Fund creating "Investor D Shares,"
is incorporated by reference to Post-Effective Amendment No. 36,
filed January 31, 1995.
(1)(q) Classification of Shares relating to the renaming of Nations
Special Equity Fund is incorporated by reference to
Post-Effective Amendment No. 36, filed January 31, 1995.
(1)(r) Certificate relating to the establishment of Nations Tax-Managed
Equity Fund's Series of Shares is incorporated by reference to
Post-Effective Amendment No. 40, filed October 20, 1995.
(2)(a) Amended and Restated Code of Regulations as approved and adopted
by Registrant's Board of Trustees is incorporated by reference to
Pre-Effective Amendment No. 2, filed October 4, 1985.
(2)(b) Amendment to the Code of Regulations as approved and adopted by
Registrant's Board of Trustees on June 24, 1992, is incorporated
by reference to Post-Effective Amendment No. 22, filed July 30,
1992.
(3) None.
(4)(a) Specimen copies of share certificates, to be filed by amendment.
3
<PAGE>
(5)(a) Investment Advisory Agreement between NationsBanc Advisors, Inc.,
("NBAI") and the Registrant is incorporated by reference to
Post-Effective Amendment No. 41, filed January 29, 1996.
(5)(b) Sub-Advisory Agreement among NBAI, TradeStreet Investment
Associates, Inc. ("TradeStreet") and the Registrant is
incorporated by reference to Post-Effective Amendment No. 41,
filed January 29, 1996.
(6)(a) Distribution Agreement between Stephens Inc. and Registrant for
all classes of shares of Nations Fund Trust is incorporated by
reference to Post-Effective Amendment No. 37, filed March 31,
1995.
(7) None.
(8)(a) Mutual Fund Custody Agreement between Registrant and NationsBank
of Texas, N.A. ("NationsBank Texas"), dated June 26, 1992,
relating to the Money Market Fund, Government Fund, Tax Exempt
Fund, Balanced Assets Fund, Short-Term Income Fund, Diversified
Income Fund, Capital Growth Fund, Emerging Growth Fund,
Adjustable Rate Government Fund, Strategic Fixed Income Fund,
Mortgage-Backed Securities Fund, North Carolina Municipal Bond
Fund, Florida Municipal Bond Fund and Texas Municipal Bond Fund,
is incorporated by reference to Post-Effective Amendment No. 23,
filed December 23, 1992.
(8)(b) Amendment No. 1 dated February 3, 1993, to the Mutual Fund
Custody Agreement dated June 26, 1992 between Registrant and
NationsBank Texas, relating to the addition of the Tennessee
Municipal Bond Fund and Intermediate Municipal Bond Fund, is
incorporated by reference to Post-Effective Amendment No. 26,
filed March 26, 1993.
(8)(b)(i) Amendment No. 2 to the Mutual Fund Custody Agreement between
Registrant and NationsBank Texas relating to the Equity Index
Fund, Short-Term Municipal Income Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Maryland Intermediate Municipal Bond
Fund, Nations North Carolina Intermediate Municipal Bond Fund,
Nations South Carolina Intermediate Municipal Bond Fund, Nations
Tennessee Intermediate Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Virginia Intermediate
Municipal Bond Fund is incorporated by reference to
Post-Effective Amendment No. 32, filed March 29, 1994.
(8)(b)(ii) Form of Amendment No. 3 to the Mutual Fund Custody Agreement
between Registrant and NationsBank Texas relating to the Special
Equity Fund is incorporated by reference to Post-Effective
Amendment No. 31, filed January 31, 1994.
(8)(b)(iii) Form of Amendment No. 4 to the Mutual Fund Custody Agreement
between the Registrant and NationsBank Texas relating to Nations
Tax-Managed Equity Fund is
4
<PAGE>
incorporated by reference to Post-Effective Amendment No. 40,
filed October 20, 1995.
(8)(c) Form of Global Sub-Custody Agreement between Registrant, The
Chase Manhattan Bank and NationsBank Texas is incorporated by
reference to Post-Effective Amendment No. 31, filed January 31,
1994.
(9)(a) Administration Agreement between Stephens Inc. and Registrant is
incorporated by reference to Post-Effective Amendment No. 37,
filed March 31, 1995.
(9)(b) Co-Administration Agreement between The Boston Company Advisors,
Inc. and Registrant is incorporated by reference to
Post-Effective Amendment No. 37, filed March 31, 1995.
(9)(c) Shareholder Administration Agreement for Trust B Shares (now
known as Primary B Shares) is incorporated by reference to
Post-Effective Amendment No. 41, filed January 29, 1996.
(9)(d) Transfer Agency and Services Agreement dated June 1, 1995,
between Registrant and The Shareholder Services Group, Inc., to
be filed by amendment.
(9)(e) Transfer Agency Agreement between Registrant and NationsBank
Texas, dated April 25, 1992, relating to the Trust Shares (now
known as Primary Shares) of the Government, Tax Exempt, Money
Market, Income, Equity, Value, Managed Bond, Municipal Income,
Georgia Municipal Bond, Maryland Municipal Bond, South Carolina
Municipal Bond, Virginia Municipal Bond and Short-Intermediate
Government Funds, is incorporated by reference to Post-Effective
Amendment No. 22, filed April 6, 1992.
(9)(f) Amendment No. 1 dated September 28, 1992, to the Transfer Agency
Agreement between Registrant and NationsBank Texas, dated April
25, 1992, relating to the Trust Shares (now known as Primary
Shares) of the Capital Growth Fund Emerging Growth Fund, Balanced
Assets Fund, Short-Term Income Fund, Adjustable Rate Government
Fund, Diversified Income Fund, Strategic Fixed Income Fund,
Mortgage-Backed Securities Fund, Florida Municipal Bond Fund,
North Carolina Municipal Bond Fund and Texas Municipal Bond Fund,
is incorporated by reference to Post-Effective Amendment No. 26,
filed March 26, 1993.
(9)(g) Amendment No. 2 dated February 3, 1993, to the Transfer Agency
Agreement between Registrant and NationsBank Texas, dated April
25, 1992, relating to the Tennessee Municipal Bond Fund and
Municipal Income Fund, is incorporated by reference to
Post-Effective Amendment No. 26, filed March 26, 1993.
(9)(h) Amendment No. 3 to the Transfer Agency Agreement relating to the
Equity Index Fund, Florida Municipal Bond Fund, Georgia Municipal
Bond Fund, Maryland
5
<PAGE>
Municipal Bond Fund, North Carolina Municipal
Bond Fund, South Carolina Municipal Bond Fund, Tennessee
Municipal Bond Fund, Texas Municipal Bond Fund and Virginia
Municipal Bond Fund, is incorporated by reference to
Post-Effective Amendment No. 29, filed September 30, 1993.
(9)(h)(i) Amendment No. 4 to the Transfer Agency Agreement relating to
Nations Tax-Managed Equity Fund is incorporated by reference to
Post-Effective Amendment No. 40, filed October 20, 1995.
(9)(i) Cross Indemnification Agreement dated June 27, 1995, between the
Trust, Nations Fund, Inc. and Nations Fund Portfolios, Inc.
incorporated by reference to Post-Effective No. 39, filed
September 28, 1995.
(9)(j) Form of Shareholder Servicing Agreement relating to Primary B
Shares is incorporated by reference to Post-Effective Amendment
No. 27, filed May 27, 1993.
(9)(k) Shareholder Servicing Plan for Investor A Shares is incorporated
by reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(9)(l) Forms of Shareholder Servicing Agreement for Investor A Shares
are incorporated by reference to Post-Effective Amendment No. 32,
filed March 29, 1994.
(9)(m) Shareholder Servicing Plan for Investor B Shares of the money
market funds and Investor C Shares (formerly Investor B Shares)
of the non-money market funds, is incorporated by reference to
Post-Effective Amendment No. 32, filed March 29, 1994.
(9)(n) Forms of Shareholder Servicing Agreement for Investor B Shares of
the money market funds and Investor C Shares (formerly Investor B
Shares) of the non-money market funds, are incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(9)(o) Shareholder Servicing Plan for Investor C Shares of the money
market funds and Investor N Shares (formerly Investor C Shares)
of the non-money market funds, is incorporated by reference to
Post-Effective Amendment No. 32, filed March 29, 1994.
(9)(p) Forms of Shareholder Servicing Agreement for Investor C Shares of
the money market funds and Investor N Shares (formerly Investor C
Shares) of the non-money market funds are incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(10) Opinion and Consent of Counsel is filed herewith.
(11) Consent of Independent Accountants (Price Waterhouse LLP) is
filed herewith.
<PAGE>
6
(12) N/A
(13) N/A
(14)(a) Prototype Individual Retirement Account Plan, is incorporated by
reference to Post-Effective Amendment No. 26, filed March 26,
1993.
(15)(a) Amended and Restated Shareholder Servicing and Distribution Plan
Pursuant to Rule 12b-1 for Investor A Shares is incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(15)(b) Form of Sales Support Agreement for Investor A Shares is
incorporated by reference to Post-Effective Amendment No. 32,
filed March 29, 1994.
(15)(c) Amended and Restated Distribution Plan for Investor B Shares of
the money market funds and Investor C Shares (formerly Investor B
Shares) of the non-money market funds, is incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(15)(d) Form of Sales Support Agreement for Investor B Shares of the
money market funds and Investor C Shares (formerly Investor B
Shares) of the non-money market funds is incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(15)(e) Distribution Plan for Investor N Shares (formerly Investor C
Shares) of the non-money market funds is incorporated by
reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(15)(f) Form of Sales Support Agreement for Investor N Shares (formerly
Investor C Shares) of the non-money market funds) is incorporated
by reference to Post-Effective Amendment No. 32, filed March 29,
1994.
(15)(g) Shareholder Administration Plan for Primary B Shares is
incorporated by reference to Post-Effective Amendment No. 41,
filed January 29, 1996.
(16)(a) Schedules for Computation of Primary A Shares is incorporated by
reference to Post-Effective Amendment No. 37, filed March 31,
1995.
(16)(b) Schedules for Computation of Primary B Shares shall be filed by
Amendment.
(16)(c) Schedules for Computation of Investor A Shares is incorporated by
reference to Post-Effective Amendment No. 37, filed March 31,
1995.
7
<PAGE>
(16)(d) Schedules for Computation of Investor C Shares (formerly Investor
B Shares) is incorporated by reference to Post-Effective
Amendment No. 37, filed March 31, 1995.
(16)(e) Schedules for Computation of Investor N Shares (formerly Investor
C Shares) is incorporated by reference to Post-Effective
Amendment No. 37, filed March 31, 1995.
(16)(f) Schedules for Computation of Investor D Shares to be filed by
amendment.
(17) N/A
(18) Revised Plan entered into by Registrant pursuant to Rule 18f-3
under the Investment Company Act of 1940 is filed herewith.
Item 25. Persons Controlled By or Under Common Control with Registrant
Registrant is controlled by its Board of Trustees.
Item 26. Number of Holders of Securities
The following information is as of May 30, 1996.
<TABLE>
<CAPTION>
Number of
Title of Class Record Holders
<S> <C> <C>
Nations Government Money Market Fund - Investor A 205
- Investor B 40
- Investor C 32
- Investor D 1
- Primary A 3,213
- Primary B 62
<PAGE>
Nations Tax Exempt Fund - Investor A 3,043
- Investor B 288
- Investor C 413
- Investor D 1
- Primary A 6,876
- Primary B 77
Nations Value Fund - Investor A 3,154
- Investor C 267
- Investor N 7,806
- Primary A 4,869
- Primary B 0
8
<PAGE>
Nations Capital Growth Fund - Investor A 1,556
- Investor C 233
- Investor N 4,226
- Primary A 3,009
- Primary B 0
Nations Emerging Growth Fund - Investor A 1,057
- Investor C 87
- Investor N 4,401
- Primary A 1,585
- Primary B 0
Nations Disciplined Equity Fund - Investor A 500
- Investor C 35
- Investor N 1,835
- Primary A 378
- Primary B 0
Nations Equity Index Fund - Primary A 332
- Primary B 0
- Investor A 54
Nations Balanced Assets Fund - Investor A 557
- Investor C 75
- Investor N 4,171
- Primary A 221
- Primary B 0
Nations Short-Intermediate - Investor A 1,378
Government Fund - Investor C 417
- Investor N 631
- Primary A 1,964
- Primary B 0
Nations Short-Term Income Fund - Investor A 151
- Investor C 133
- Investor N 491
- Primary A 1,235
- Primary B 0
9
<PAGE>
Nations Diversified Income Fund - Investor A 632
- Investor C 159
- Investor N 4,329
- Primary A 115
- Primary B 0
Nations Strategic Fixed Income - Investor A 330
Fund - Investor C 16
- Investor N 136
- Primary A 3,176
- Primary B 0
Nations Municipal Income Fund - Investor A 284
- Investor C 70
- Investor N 430
- Primary A 521
- Primary B 0
Nations Intermediate Municipal - Investor A 38
Bond Fund - Investor C 8
- Investor N 47
- Primary A 537
- Primary B 0
Nations Short-Term Municipal - Investor A 33
Income Fund - Investor C 17
- Investor N 162
- Primary A 551
- Primary B 0
Nations Florida Intermediate - Investor A 57
Municipal Bond Fund - Investor C 9
- Investor N 134
- Primary A 298
- Primary B 0
Nations Georgia Intermediate - Investor A 193
Municipal Bond Fund - Investor C 51
- Investor N 183
- Primary A 245
- Primary B 0
Nations Maryland Intermediate - Investor A 331
Municipal Bond Fund - Investor C 77
- Investor N 225
10
<PAGE>
- Primary A 357
- Primary B 0
Nations North Carolina Intermediate - Investor A 124
Municipal Bond Fund - Investor C 34
- Investor N 227
- Primary A 147
- Primary B 0
Nations South Carolina Intermediate - Investor A 181
Municipal Bond Fund - Investor C 116
- Investor N 221
- Primary A 237
- Primary B 0
Nations Tennessee Intermediate - Investor A 78
Municipal Bond Fund - Investor C 2
- Investor N 83
- Primary A 55
- Primary B 0
Nations Texas Intermediate - Investor A 22
Municipal Bond Fund - Investor C 3
- Investor N 103
- Primary A 190
- Primary B 0
Nations Virginia Intermediate - Investor A 942
Municipal Bond Fund - Investor C 140
- Investor N 423
- Primary A 761
- Primary B 0
Nations Virginia Municipal Bond - Investor A 24
Fund - Investor C 3
- Investor N 551
- Primary A 42
- Primary B 0
Nations Maryland Municipal Bond - Investor A 18
Fund - Investor C 2
- Investor N 369
- Primary A 33
- Primary B 0
11
<PAGE>
Nations North Carolina Municipal - Investor A 30
Bond Fund - Investor C 3
- Investor N 739
- Primary A 28
- Primary B 0
Nations South Carolina Municipal - Investor A 17
Bond Fund - Investor C 4
- Investor N 299
- Primary A 37
- Primary B 0
Nations Florida Municipal Bond Fund - Investor A 16
- Investor C 3
- Investor N 558
- Primary A 101
- Primary B 0
Nations Georgia Municipal Bond Fund - Investor A 11
- Investor C 3
- Investor N 345
- Primary A 33
- Primary B 0
Nations Tennessee Municipal Bond - Investor A 11
Fund - Investor C 3
- Investor N 169
- Primary A 14
- Primary B 0
Nations Texas Municipal Bond Fund - Investor A 17
- Investor C 3
- Investor N 316
- Primary A 41
- Primary B 0
</TABLE>
Item 27. Indemnification
Article IX, Section 9.3 of Registrant's Declaration of Trust,
incorporated by reference as Exhibit (1)(a) hereto, provides for the
indemnification of Registrant's trustees and employees. Indemnification
of Registrant's administrator, principal underwriter, custodian, and
transfer agent is provided for, respectively, in:
1. Administration Agreement with Stephens Inc.;
12
<PAGE>
2. Co-Administration Agreement with First Data Investors
Services Group, Inc.;
3. Distribution Agreement with Stephens Inc.;
4. Mutual Fund Custody Agreement with NationsBank Texas;
5. Transfer Agency Agreement with NationsBank Texas; and
6. Transfer Agency and Registrar Agreement with First Data
Investors Services Group, Inc.
The Registrant has entered into a Cross Indemnification Agreement
with Nations Fund, Inc. (the "Company") and Nations Fund Portfolios,
Inc.("Portfolios"), dated June 27, 1995. The Company and or Portfolios will
indemnify and hold harmless the Trust against any losses, claims, damages or
liabilities, to which the Trust may become subject, under the Securities Act of
1933 (the "Act") and the Investment Company Act of 1940 (the "1940 Act") insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectuses, any Preliminary Prospectuses,
the Registration Statements, any other Prospectuses relating to the securities,
or any amendments or supplements to the foregoing (hereinafter referred to
collectively as the "Offering Documents"), or arise out of or are based upon the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Offering Documents in
reliance upon and in conformity with written information furnished to the
Primary By the Company and/or Portfolios expressly for use therein; and will
reimburse the Trust for any legal or other expenses reasonably incurred by the
Trust in connection with investigating or defending any such action or claim;
provided, however, that the Company and/or Portfolios shall not be liable in any
such case to the extent that any such loss, claim, damage, or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Offering Documents in reliance upon and
in conformity with written information furnished to the Company and/or
Portfolios by the Trust expressly for use in the Offering Documents.
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 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
13
<PAGE>
counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation.
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 Registrant indemnify any of its trustees, 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 reckless disregard of
the duties involved in the conduct of his/her office or arising under his/her
agreement with Registrant. Registrant will comply with Rule 484 under the
Securities Act of 1933 and Release No. 11330 under the 1940 Act, as amended, in
connection with any indemnification.
Insofar as indemnification for liability arising under the
Securities Act of 1933, as amended, may be permitted to trustees, officers, and
controlling persons of Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a trustee, officer, or controlling person of
Registrant in the successful defense of any action, suit, or proceeding) is
asserted by such trustee, officer, or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Adviser
(a) To the knowledge of Registrant, none of the directors or officers
of NBAI, the adviser to the Registrant's portfolios, or TradeStreet, the
sub-investment adviser, except those set forth below, is or has been, at any
time during the past two calendar years, engaged in any other business,
profession, vocation or employment of a substantial nature, except that certain
directors and officers also hold various positions with, and engage in business
for, the company that owns all the outstanding stock (other than directors'
qualifying shares) of NBAI or TradeStreet, respectively, or other subsidiaries
of NationsBank Corporation.
(b) NBAI performs investment advisory services for the Registrant and
certain other customers. NBAI is a wholly owned subsidiary of NationsBank, N.A.
("NationsBank"), which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the investment adviser is incorporated by reference to Form ADV filed by NBAI
with the Securities and Exchange Commission pursuant to the Investment Advisers
Act of 1940 (file no. 801-49874).
(c) TradeStreet performs sub-investment advisory services for the
Registrant and certain other customers. TradeStreet is a wholly owned subsidiary
of NationsBank, which in turn is a wholly owned banking subsidiary of
NationsBank Corporation. Information with respect to each director and officer
of the sub-investment adviser is incorporated by reference to Form filed
14
<PAGE>
by TradeStreet with the Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940 (file no. 801-50372).
Item 29. Principal Underwriter
(a) Stephens Inc., distributor for the Registrant, does not presently act
as investment adviser for any other registered investment companies, but does
act as principal underwriter for the Overland Express Funds, Inc., Stagecoach
Inc., Stagecoach Funds, Inc. and Stagecoach Trust and is the exclusive placement
agent for Master Investment Trust, Managed Series Investment Trust, Life &
Annuity Trust and Master Investment Portfolio, all of which are registered
open-end management investment companies, and has acted as principal underwriter
for the Liberty Term Trust, Inc., Nations Government Income Term Trust 2003,
Inc., Nations Government Income Term Trust 2004, Inc. and the Managed Balanced
Target Maturity Fund, Inc., closed-end management investment companies.
(b) Information with respect to each director and officer of the principal
underwriter is incorporated by reference to Form ADV filed by Stephens Inc. with
the Securities and Exchange Commission pursuant to the Investment Advisers Act
of 1940 (file #501-15510).
(c) Not applicable.
Item 30. Location of Accounts and Records
(1) NBAI, One NationsBank Plaza, Charlotte, North Carolina 28255 (records
relating to its function as Investment Adviser).
(2) TradeStreet, One NationsBank Plaza, Charlotte, North Carolina 28255
(records relating to its function as sub-adviser).
(3) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201 (records
relating to its function as Distributor).
(4) Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201 (records
relating to its function as Administrator).
(5) The First Data Investors Services Group, Inc., One Exchange Place,
Boston, Massachusetts 02109 (records relating to its function as
Co-Administrator and Transfer Agent).
(6) NationsBank Texas, 1401 Elm Street, Dallas, Texas 75202 (records
relating to its function as Sub-Transfer Agent and Custodian).
15
<PAGE>
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
(a) Registrant undertakes to call a meeting for the purpose of voting
upon the question or removal of a trustee or trustees when
requested in writing to do so by the holders of at least 10% of a
Fund's outstanding shares of beneficial interest and in connection
with such meeting to comply with the provisions of Section 16(c)
of the 1940 Act, as amended, relating to shareholder
communications.
(b) Registrant undertakes to furnish each person to whom a prospectus
is delivered with a copy of the Registrant's most recent annual
report to shareholder upon request and without charge.
16
<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 23rd day of July, 1996.
NATIONS FUND TRUST
By: *
A. Max Walker
President and Chairman
of the Board of Trustees
By: /s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
Pursuant to the requirements of the Securities Act of 1933, this
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 23, 1996
(A. Max Walker) of the Board of Trustees
(Principal Executive Officer)
* Treasurer July 23, 1996
(Richard H. Rose) Vice President
(Principal Financial and
Accounting Officer)
* Trustee July 23, 1996
(Edmund L. Benson, III)
* Trustee July 23, 1996
(James Ermer)
* Trustee July 23, 1996
(William H. Grigg)
* Trustee July 23, 1996
(Thomas F. Keller)
* Trustee July 23, 1996
(Carl E. Mundy, Jr.)
* Trustee July 23, 1996
(Charles B. Walker)
* Trustee July 23, 1996
(Thomas S. Word)
/s/ Richard H. Blank, Jr.
Richard H. Blank, Jr.
*Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
EX-99.B10 OPIN COUNS
EX-99.B11 OTH CONSNT
EX-99.B18 18F3 PLAN
</TABLE>
<PAGE>
EX-99.B10
[MORRISON & FOERSTER LLP LETTERHEAD]
July 22, 1996
Nations Fund Trust
111 Center Street
Little Rock, Arkansas 72201
Re: Units of Beneficial Interest in the
Funds of the Nations Fund Trust
Gentlemen:
We refer to Post-Effective Amendment No. 44 and Amendment No. 46
to the Registration Statement on Form N-1A (SEC File No. 2-97817; 811-4305) (the
"Registration Statement") of Nations Fund Trust (the "Trust") relating to the
registration of an indefinite number of units of Beneficial Interest in Funds of
the Trust (collectively, the "Shares").
We have been requested by the Trust to furnish this opinion as
Exhibit 10 to the Registration Statement.
We have examined such records, documents, instruments,
certificates of public officials and of the Trust, made such inquiries of the
Trust, and examined such questions of law as we have deemed necessary for the
purpose of rendering the opinion set forth herein. We have assumed the
genuineness of all signatures and the authenticity of all items submitted to us
as originals and the conformity with originals of all items submitted to us as
copies.
Based upon and subject to the foregoing, we are of the opinion
that:
The issuance and sale of the Shares by the Trust have been duly
and validly authorized by all appropriate action and, assuming delivery by sale
or in accord with the Trust's dividend reinvestment plan in accordance with the
description set forth in the Registration Statement, as amended, the Shares will
be validly issued, fully paid and nonassessable.
<PAGE>
Nations Fund Trust
July 22, 1996
Page 2
We consent to the inclusion of this opinion as an exhibit to the
Registration Statement.
In addition, we hereby consent to the use of our name and to the
reference to our firm under the caption "Counsel" in the Statements of
Additional Information, and the description of advice rendered by our firm under
the headings "How The Fund Is Managed" and "How The Funds Are Managed" in the
Prospectuses, which are included as part of the Registration Statement.
Very truly yours,
/S/ MORRISON & FOERSTER LLP
MORRISON & FOERSTER LLP
<PAGE>
EX-99.B11
[PRICE WATERHOUSE LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 44 under the Securities Act of 1933 to the registration statement
on Form N-1A (the "Registration Statement") of our report dated May 17, 1996,
relating to the financial statements and financial highlights appearing in the
March 31, 1996 Annual Reports to Shareholders of Nations Fund Trust, which are
also incorporated by reference into the Registration Statement. We also consent
to the references to us under the headings "Financial Highlights" and "Other
Service Providers" in the Prospectuses and under the heading "Independent
Accountant and Reports" in the Statements of Additional Information.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
July 22, 1996
<PAGE>
EX-99.B18
NATIONS FUND TRUST
RULE 18F-3 MULTI-CLASS PLAN
I. INTRODUCTION.
Pursuant to Rule 18f-3 under the Investment Company Act of 1940,
as amended (the "1940 Act"), the following sets forth the method for allocating
fees and expenses among each class of shares in the investment portfolios of
Nations Fund Trust (the "Trust"). In addition, this Rule 18f-3 Multi-Class Plan
(the "Plan") sets forth the maximum initial sales loads, contingent deferred
sales charges, Rule 12b-1 distribution fees, shareholder servicing fees,
conversion features, exchange privileges and other shareholder services
applicable to a particular class of shares of the portfolios. The Plan also
identifies expenses that may be allocated to a particular class of shares to the
extent that they are actually incurred in a different amount by the class or
relate to a different kind or degree of services provided to the class.
The Trust is an open-end series investment company registered
under the 1940 Act, the shares of which are registered on Form N-1A under the
Securities Act of 1933 (Registration Nos. 2-97817 and 811-4305). The Trust
elects to offer multiple classes of shares in its investment portfolios pursuant
to the provisions of Rule 18f-3 and this Plan.
The Trust currently consists of the following thirty-three
separate investment portfolios: Nations Government Money Market Fund, Nations
Tax Exempt Fund, Nations Value Fund, Nations Capital Growth Fund, Nations
Emerging Growth Fund, Nations Equity Index Fund, Nations Disciplined Equity
Fund, Nations Balanced Assets Fund, Nations Short-Intermediate Government Fund,
Nations Short-Term Income Fund, Nations Diversified Income Fund, Nations
Strategic Fixed Income Fund, Nations Managed Index Fund, Nations Managed
SmallCap Index Fund, Nations Municipal Income Fund, Nations Short-Term Municipal
Income Fund, Nations Intermediate Municipal Bond Fund, Nations Florida
Intermediate Municipal Bond Fund, Nations Florida Municipal Bond Fund, Nations
Georgia Intermediate Municipal Bond Fund, Nations Georgia Municipal Bond Fund,
Nations Maryland Intermediate Municipal Bond Fund, Nations Maryland Municipal
Bond Fund, Nations North Carolina Intermediate Municipal Bond Fund, Nations
North Carolina Municipal Bond Fund, Nations South Carolina Intermediate
Municipal Bond Fund, Nations South Carolina Municipal Bond Fund, Nations
Tennessee Intermediate Municipal Bond Fund, Nations Tennessee Municipal Bond
Fund, Nations Texas Intermediate Municipal Bond Fund, Nations Texas Municipal
Bond Fund, Nations Virginia Intermediate Municipal Bond Fund and Nations
Virginia Municipal Bond Fund.
The above-listed investment portfolios of the Trust (the "Funds")
are authorized to issue the following classes of shares representing interests
in the Funds:
(i) Nations Government Money Market Fund and Nations Tax Exempt
Fund (the "Money Market Funds") -- Primary A Shares,
Primary B Shares, Investor A Shares, Investor B Shares,
Investor C Shares and Investor D Shares;
1
<PAGE>
(ii) Nations Equity Index Fund -- Primary A Shares, Primary
B Shares and Investor A Shares;
(iii) Nations Managed Index Fund and Nations Managed SmallCap
Index Fund -- Primary A Shares, Primary B Shares, Investor
A Shares and Investor C Shares;
(iv) Nations Value Fund, Nations Capital Growth Fund, Nations
Emerging Growth Fund, Nations Disciplined Equity Fund,
Nations Balanced Assets Fund, Nations Short-Intermediate
Government Fund, Nations Short-Term Income Fund, Nations
Diversified Income Fund, Nations Strategic Fixed Income
Fund, Nations Municipal Income Fund, Nations Short-Term
Municipal Income Fund, Nations Intermediate Municipal Bond
Fund, Nations Florida Intermediate Municipal Bond Fund,
Nations Florida Municipal Bond Fund, Nations Georgia
Intermediate Municipal Bond Fund, Nations Georgia Municipal
Bond Fund, Nations Maryland Intermediate Municipal Bond
Fund, Nations Maryland Municipal Bond Fund, Nations North
Carolina Intermediate Municipal Bond Fund, Nations North
Carolina Municipal Bond Fund, Nations South Carolina
Intermediate Municipal Bond Fund, Nations South Carolina
Municipal Bond Fund, Nations Tennessee Intermediate
Municipal Bond Fund, Nations Tennessee Municipal Bond Fund,
Nations Texas Intermediate Municipal Bond Fund, Nations
Texas Municipal Bond Fund, Nations Virginia Intermediate
Municipal Bond Fund and Nations Virginia Municipal Bond
Fund-- Primary A Shares, Primary B Shares, Investor A
Shares, Investor C Shares and Investor N Shares.
II.ALLOCATION OF EXPENSES.
A. Pursuant to Rule 18f-3 under the 1940 Act, the Trust shall
allocate to each class of shares in a Fund (i) any fees and expenses incurred by
the Trust in connection with the distribution of such class of shares under a
distribution plan adopted for such class of shares pursuant to Rule 12b-1, and
(ii) any fees and expenses incurred by the Trust under a shareholder servicing
plan in connection with the provision of shareholder services to the holders of
such class of shares.
B. In addition, pursuant to Rule 18f-3, the Trust may
allocate the following fees and expenses to a particular class of shares in a
single Fund:
(i) transfer agent fees identified by the transfer agent as
being attributable to such class of shares;
(ii) printing and postage expenses related to preparing and
distributing materials such as shareholder reports,
prospectuses, reports, and proxies to current shareholders
of such class of shares or to regulatory agencies with
respect to such class of shares;
2
<PAGE>
(iii) blue sky registration or qualification fees incurred by
such class of shares;
(iv) Securities and Exchange Commission registration fees
incurred by such class of shares;
(v) the expense of administrative personnel and services
(including, but not limited to, those of a portfolio
accountant, custodian or dividend paying agent charged with
calculating net asset values or determining or paying
dividends) as required to support the shareholders of such
class of shares;
(vi) litigation or other legal expenses relating solely to such
class of shares;
(vii) fees of the Trust's Trustees incurred as result of issues
relating to such class of shares;
(viii) independent accountants' fees relating solely to such class
of shares; and
(ix) any other fees and expenses, not including advisory or
custodial fees or other expenses related to the management
of the Fund's assets, relating to (as defined below) such
class of shares.
C. For all purposes under this Plan, fees and expenses "relating
to" a class of shares are those fees and expenses that are actually incurred in
a different amount by the class or that relate to a different kind or degree of
services provided to the class. The proper officers of the Trust shall have the
authority to determine whether any or all of the fees and expenses described in
Section B of this Part II should be allocated to a particular class of shares.
The Board of Trustees will monitor any such allocations to ensure that they
comply with the requirements of the Plan.
D. Income, realized and unrealized capital gains and losses, and
any expenses of Nations Government Money Market Fund, Nations Tax Exempt Fund,
Nations Short-Intermediate Government Fund, Nations Short-Term Income Fund,
Nations Diversified Income Fund, Nations Strategic Fixed Income Fund, Nations
Municipal Income Fund, Nations Short-Term Municipal Income Fund, Nations
Intermediate Municipal Bond Fund, Nations Florida Intermediate Municipal Bond
Fund, Nations Florida Municipal Bond Fund, Nations Georgia Intermediate
Municipal Bond Fund, Nations Georgia Municipal Bond Fund, Nations Maryland
Intermediate Municipal Bond Fund, Nations Maryland Municipal Bond Fund, Nations
North Carolina Intermediate Municipal Bond Fund, Nations North Carolina
Municipal Bond Fund, Nations South Carolina Intermediate Municipal Bond Fund,
Nations South Carolina Municipal Bond Fund, Nations Tennessee Intermediate
Municipal Bond Fund, Nations Tennessee Municipal Bond Fund, Nations Texas
Intermediate Municipal Bond Fund, Nations Texas Municipal Bond Fund, Nations
Virginia Intermediate Municipal Bond Fund and Nations Virginia Municipal Bond
Fund not allocated to a particular class of any such Fund pursuant to this Plan
shall be allocated to
3
<PAGE>
each class of the Fund on the basis of the relative net assets (settled shares),
as defined in Rule 18f-3, of that class in relation to the net assets of the
Fund.
Income, realized and unrealized capital gains and losses, and any
expenses of Nations Value Fund, Nations Capital Growth Fund, Nations Emerging
Growth Fund, Nations Equity Index Fund, Nations Disciplined Equity Fund, Nations
Balanced Assets Fund, Nations Managed Index Fund and Nations Managed SmallCap
Index Fund not allocated to a particular class of any such Fund pursuant to this
Plan shall be allocated to each class of the Fund on the basis of the net asset
value of that class in relation to the net asset value of the Fund.
E. In certain cases, NationsBanc Advisors, Inc., TradeStreet
Investment Associates, Inc., Stephens Inc., First Data Investor Services Group,
Inc., (formerly The Shareholder Services Group, Inc.), or another service
provider for a Fund may waive or reimburse all or a portion of the expenses of a
specific class of shares of the Fund. The Board of Trustees will monitor any
such waivers or reimbursements to ensure that they do not provide a means for
cross-subsidization between classes.
III.CLASS ARRANGEMENTS.
The following summarizes the maximum front-end sales charges,
contingent deferred sales charges, Rule 12b-1 distribution fees, shareholder
servicing fees, conversion features, exchange privileges and other shareholder
services applicable to each class of shares of the Trust. Additional details
regarding such fees and services are set forth in the relevant Funds' current
Prospectus and Statement of Additional Information.
A.PRIMARY A SHARES -- ALL FUNDS.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees: None
4. Maximum Shareholder Servicing Fees: None
6. Exchange Privileges:
(a) Primary A Shares of a Fund may be exchanged
for Primary A Shares of any other fund of
the Nations Fund Family.
(b) From time to time, the Board of Trustees of
the Trust may modify, or ratify
modifications to, the exchange privileges of
Primary A Shares of a Fund without amending
this Plan, provided that such exchange
privileges, as modified, are described in
the then-current prospectus for such shares
of such Fund.
4
<PAGE>
7. Other Shareholder Services: None
B. PRIMARY B SHARES -- ALL FUNDS.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees: None
4. Maximum Shareholder Servicing/Administration Fees:
(a) Pursuant to a Shareholder Servicing Plan,
the Primary B Shares of Nations Government
Money Market Fund and Nations Tax Exempt
Fund each may pay shareholder servicing fees
of up to 0.25% of the average daily net
assets of such shares.
(b) Pursuant to a Shareholder Administration
Plan, the Primary B Shares of Nations Value
Fund, Nations Capital Growth Fund, Nations
Emerging Growth Fund, Nations Equity Index
Fund, Nations Disciplined Equity Fund,
Nations Balanced Assets Fund, Nations
Short-Term Income Fund, Nations
Short-Intermediate Government Fund, Nations
Strategic Fixed Income Fund, Nations
Diversified Income Fund, Nations Managed
Index Fund and Nations Managed SmallCap
Index Fund each may pay shareholder
administration fees of up to 0.60% of the
average daily net assets of such shares,
provided that in no event may the portion of
such fee that constitutes a "service fee,"
as that term is defined in Article III,
Section 26(b)(9) of the Rules of Fair
Practice of the National Association of
Securities Dealers, Inc., exceed 0.25% of
the average daily net asset value of such
Primary B Shares of a Fund.
5. Conversion Features: Primary B Shares of a Fund
shall have such conversion features and exchange
privileges, if any, as are determined by or
ratified by the Board of Trustees of the Trust and
described in the then-current prospectus for such
shares of such Fund.
6. Exchange Privileges:
(a) Primary B Shares of a Fund may be exchanged
for Primary B Shares of any other fund of
Nations Fund Family.
5
<PAGE>
(b) From time to time, the Board of Trustees of
the Trust may modify, or ratify
modifications to, the exchange privileges of
Primary B Shares of a Fund without amending
this Plan, provided that such exchange
privileges, as modified, are described in
the then-current prospectus for such shares
of such Fund.
7. Other Shareholder Services: None
C. INVESTOR A SHARES -- ALL FUNDS.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge (as a percentage
of the lower of the original purchase price or
redemption proceeds): None
3. Maximum Rule 12b-1 Distribution Fees:
(a) Pursuant to a Shareholder Servicing and
Distribution Plan adopted under Rule 12b-1,
Investor A Shares of the Money Market Funds
may pay distribution fees of up to 0.10% of
the average daily net assets of such shares.
(b) In addition, pursuant to the Shareholder
Servicing and Distribution Plan adopted
under Rule 12b-1, Investor A Shares of
Nations Short-Term Income Fund and Nations
Short-Term Municipal Income Fund may pay
distribution fees of up to 0.25% of the
average daily net assets of such shares.
4. Maximum Rule 12b-1 Distribution/Shareholder
Servicing Fees: Pursuant to a Shareholder Servicing
and Distribution Plan adopted under Rule 12b-1,
Investor A Shares of Nations Equity Index Fund and
of each Non-Money Market Fund (except Nations
Short-Term Income Fund and Nations Short-Term
Municipal Income Fund) may pay a combined
distribution and shareholder servicing fee of up to
0.25% of the average daily net assets of such
shares.
5. Maximum Shareholder Servicing Fees: Pursuant to a
Shareholder Servicing Plan, Investor A Shares of the
Money Market Funds, Nations Short-Term Income Fund
and Nations Short-Term Municipal Income Fund may pay
shareholder servicing fees of up to 0.25% of the
average daily net assets of such shares.
6
<PAGE>
6. Conversion Features: Investor A Shares of a Fund
shall have such conversion features, if any, as are
determined by or ratified by the Board of Trustees
of the Trust and described in the then-current
prospectus for such shares of such Fund.
7. Exchange Privileges:
(a) Money Market Funds:
(i) Investor A Shares of the Money
Market Funds may be exchanged for
Investor A Shares of any other money
market fund offered by the Nations
Fund Family (collectively, the
"Nations Fund Money Market Funds").
(ii) Investor A Shares of the Money
Market Funds acquired through a
Nations Fund Individual Retirement
Account ("IRA") may be exchanged for
Investor A or Investor N Shares of
any non-money market fund offered by
the Nations Fund Family
(collectively, the "Nations Fund
Non-Money Market Funds").
(iii) Investor A Shares of the Money
Market Funds acquired through a
permissible exchange of Investor A
Shares of a Nations Fund Non-Money
Market Fund may be re-exchanged for
Investor A Shares of any Nations
Fund Money Market Fund or Nations
Fund Non-Money Market Fund.
(b) Non-Money Market Funds:
(i) Investor A Shares of Nations Equity
Index Fund and of the Non-Money
Market Funds may be exchanged for
Investor A Shares of any other
Nations Fund Non-Money Market Fund
or any Nations Fund Money Market
Fund.
(ii) Investor A Shares of Nations
Short-Term Income Fund and Nations
Short-Term Municipal Income Fund
acquired in exchange for Investor N
Shares of another Nations Fund
Non-Money Market Fund may be
re-exchanged for Investor N Shares
of any other Nations Fund Non-Money
Market Fund, Investor C Shares of
any Nations Fund Money Market Fund
or Investor A Shares of the other
Fund.
7
<PAGE>
(c) From time to time, the Board of Trustees of
the Trust may modify, or ratify
modifications to, the exchange privileges of
Investor A Shares of a Fund without amending
this Plan, provided that such exchange
privileges, as modified, are described in
the then-current prospectus for such shares
of such Fund.
8. Other Shareholder Services. The Trust offers a
Systematic Investment Plan and Automatic Withdrawal
Plan to holders of Investor A Shares of the Funds.
In addition, the Trust offers check-writing
privileges to holders of Investor A Shares of the
Money Market Funds.
D. INVESTOR B SHARES -- MONEY MARKET FUNDS ONLY.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a
Distribution Plan adopted under Rule 12b-1, the
Investor B Shares of the Money Market Funds may pay
distribution fees of up to 0.10% of the average
daily net assets of such shares.
4. Maximum Shareholder Servicing Fees: Pursuant to a
Shareholder Servicing Plan, the Investor B Shares of
the Money Market Funds may pay shareholder servicing
fees of up to 0.25% of the average daily net assets
of such shares.
5. Conversion Features: Investor B Shares of a Fund
shall have such conversion features, if any, as are
determined by or ratified by the Board of Trustees
of the Trust and described in the then-current
prospectus for such shares of such Fund.
6. Exchange Privileges:
(a) Investor B Shares of a Money Market Fund may
be exchanged for Investor B Shares of any
other Nations Fund Money Market Fund.
(b) From time to time, the Board of Trustees of
the Trust may modify, or ratify
modifications to, the exchange privileges of
Investor B Shares of a Fund without amending
this Plan, provided that such exchange
privileges, as modified, are described in
the then-current prospectus for such shares
of such Fund.
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7. Other Shareholder Services: The Trust offers
check-writing services, a Systematic Investment Plan
and an Automatic Withdrawal Plan to holders of
Investor B Shares of the Money Market Funds.
E. INVESTOR C SHARES -- ALL FUNDS.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge (as a percentage of
the lower of the purchase price or redemption
proceeds):
(a) Money Market Funds: None
(b) Non-Money Market Funds: 0.50% if redeemed
within one year of purchase and
eliminated thereafter
3. Maximum Rule 12b-1 Distribution Fees:
(a) Money Market Funds: Pursuant to a
Distribution Plan adopted under Rule 12b-1,
Investor C Shares of the Money Market Funds
may pay distribution fees of up to 0.10% of
the average daily net assets of such shares.
(b) Non-Money Market Funds: Pursuant to a
Distribution Plan adopted under Rule 12b-1,
Investor C Shares of the Non-Money Market
Funds may pay distribution fees of up to
0.75% of the average daily net assets of
such shares.
4. Maximum Shareholder Servicing Fees: Pursuant to a
Shareholder Servicing Plan, the Investor C Shares of
each Fund may pay shareholder servicing fees of up
to 0.25% of the average daily net assets of such
shares.
5. Conversion Features: Investor C Shares of a Fund
shall have such conversion features, if any, as are
determined by or ratified by the Board of Trustees
of the Trust and described in the then-current
prospectus for such shares of such Fund.
6. Exchange Privileges:
(a) Money Market Funds.
(i) Investor C Shares of a Money Market
Fund that are purchased directly may
not be exchanged for shares of any
other fund offered by the Nations
Fund Family.
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<PAGE>
(ii) Investor C Shares of a Money Market Fund acquired
through a permissible exchange of Investor N Shares
of a Nations Fund Non-Money Market Fund or Investor
A Shares of Nations Short-Term Income Fund or
Nations Short-Term Municipal Income Fund may be
re-exchanged for Investor C Shares of any other
Nations Fund Money Market Fund, Investor N Shares of
a Nations Fund Non-Money Market Fund (except Nations
Short-Term Income Fund or Nations Short-Term
Municipal Income Fund) or Investor A Shares of
Nations Short-Term Income Fund or Nations Short-Term
Municipal Income Fund.
(b) Non-Money Market Funds.
(i) Investor C Shares of a Non-Money
Market Fund may be exchanged for
Investor C Shares of any other
Nations Fund Non-Money Market Fund.
However, Investor C Shares of a
Non-Money Market Fund (other than
Nations Short-Term Income Fund and
Nations Short-Term Municipal Income
Fund) may not be exchanged for
Investor C Shares of Nations
Short-Term Income Fund or Nations
Short-Term Municipal Income Fund
until one year after purchase.
(ii) In addition, Investor C Shares of a
Non-Money Market Fund (except
Nations Short-Term Income Fund and
Nations Short-Term Municipal Income
Fund may be exchanged for Investor D
Shares of any Nations Fund Money
Market Fund.
(c) From time to time, the Board of Trustees of
the Trust may modify, or ratify
modifications to, the exchange privileges of
Investor C Shares of a Fund without amending
this Plan, provided that such exchange
privileges, as modified, are described in
the then-current prospectus for such shares
of such Fund.
7. Other Shareholder Services. The Trust offers a
Systematic Investment Plan and Automatic Withdrawal
Plan to holders of Investor C Shares of the
Non-Money Market Funds.
F. INVESTOR N SHARES -- NON-MONEY MARKET FUNDS ONLY.
1. Maximum Initial Sales Load: None
2. Contingent Deferred Sales Charge: None
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<PAGE>
3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a
Distribution Plan adopted under Rule 12b-1, the
Investor N Shares of each Non-Money Market Fund may
pay distribution fees of up to 0.75% of the average
daily net assets of such shares.
4. Maximum Shareholder Servicing Fees: Pursuant to a
Shareholder Servicing Plan, the Investor N Shares of
each Non-Money Market Fund may pay shareholder
servicing fees of up to 0.25% of the average daily
net assets of such shares.
5. Conversion Features: Investor N Shares of a Fund
shall have such conversion features, if any, as are
determined by or ratified by the Board of Trustees
of the Trust and described in the then-current
prospectus for such shares of such Fund.
6. Exchange Privileges:
(a) Investor N Shares of a Non-Money Market Fund
(except Nations Short-Term Income Fund and
Nations Short-Term Municipal Income Fund)
may be exchanged for Investor N Shares of
any other Nations Fund Non-Money Market Fund
(except Nations Short-Term Income Fund and
Nations Short-Term Municipal Income Fund),
Investor A Shares of the Nations Short-Term
Income Fund or Nations Short-Term Municipal
Income Fund or Investor C Shares of any
Nations Fund Money Market Fund.
(b) Investor N Shares of Nations Short-Term
Income Fund and Nations Short-Term Municipal
Income Fund may be exchanged only for
Investor N Shares of the other Fund.
(c) From time to time, the Board of Trustees of
the Trust may modify, or ratify
modifications to, the exchange privileges of
Investor N Shares of a Fund without amending
this Plan, provided that such exchange
privileges, as modified, are described in
the then-current prospectus for such shares
of such Fund.
7. Other Shareholder Services: The Trust offers a
Systematic Investment Plan and an Automatic
Withdrawal Plan to holders of Investor N Shares of
the Non-Money Market Funds.
G. INVESTOR D SHARES -- MONEY MARKET FUNDS ONLY.
1. Maximum Initial Sales Load: None
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<PAGE>
2. Contingent Deferred Sales Charge: None
3. Maximum Rule 12b-1 Distribution Fees: Pursuant to a
Distribution Plan adopted under Rule 12b-1, Investor
D Shares of the Money Market Funds may pay
distribution fees of up to 0.45% of the average
daily net assets of such shares.
4. Maximum Shareholder Servicing Fees: Pursuant to a
Shareholder Servicing Plan, the Investor D Shares of
the Money Market Funds may pay shareholder servicing
fees of up to 0.25% of the average daily net assets
of such shares.
5. Conversion Features: Investor D Shares of a Fund
shall have such conversion features, if any, as are
determined by or ratified by the Board of Trustees
of the Trust and described in the then-current
prospectus for such shares of such Fund.
6. Exchange Privileges:
(a) Investor D Shares of a Money Market Fund may
be exchanged for Investor D Shares of any
other Nations Fund Money Market Fund or
Investor C Shares of any Nations Fund
Non-Money Market Fund. However, Investor D
Shares of a Money Market Fund may not be
exchanged for Investor C Shares of Nations
Short-Term Income Fund or Nations Short-Term
Municipal Income Fund until one year after
purchase of the shares exchanged to acquire
the subject Investor D Shares.
(b) From time to time, the Board of Trustees of
the Trust may modify, or ratify
modifications to, the exchange privileges of
Investor D Shares of a Fund without amending
this Plan, provided that such exchange
privileges, as modified, are described in
the then-current prospectus for such shares
of such Fund.
7. Other Shareholder Services: The Trust offers an
Automatic Withdrawal Plan to holders of Investor D
Shares of the Money Market Funds.
IV. BOARD REVIEW.
The Board of Trustees of the Trust shall review this Plan as
frequently as it deems necessary. Prior to any material amendment(s) to this
Plan with respect to a Fund's shares, the Trust's Board of Trustees, including a
majority of the Trustees who are not interested persons of the Trust, shall find
that the Plan, as proposed to be amended (including any proposed amendments to
the method of allocating class and/or fund expenses), is in the best interests
of each class of shares of the Fund individually and the Fund as a whole. In
considering whether to
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<PAGE>
approve any proposed amendment(s) to the Plan, the Trustees of the Trust shall
request and evaluate such information as they consider reasonably necessary to
evaluate the proposed amendment(s) to the Plan.
Adopted: Effective April 3, 1995
Amended: Effective July 13, 1995
September 7, 1995
January 1, 1996
January 18, 1996
July ___, 1996
