<PAGE>
Prospectus
DAILY SHARES
JULY 31, 1996
AS SUPPLEMENTED ON
NOVEMBER 30, 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 -- Daily Shares
(formerly named Investor D 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 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 Daily 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
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 investment sub-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 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)
NF-96148-796
<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
How To Redeem Shares 18
How To Exchange Shares 19
Shareholder Servicing And Distribution Plans 20
How The Funds Value Their Shares 22
How Dividends And Distributions Are Made; Tax
Information 22
Appendix A -- Portfolio Securities 24
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
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<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 Daily Shares must have
a current value of at least $1,000. See "How To Buy Shares."
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
Daily Shares of the Funds. The Examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Funds over specified
periods.
DAILY SHARES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Nations
Nations Nations Treasury Government Money
SHAREHOLDER TRANSACTION EXPENSES Prime Fund Fund Market Fund
Sales Load Imposed on Purchases None None None
Deferred Sales Charge .00%(1) .00%(1) .00%(1)
<S> <C>
Nations
Tax Exempt
SHAREHOLDER TRANSACTION EXPENSES Fund
Sales Load Imposed on Purchases None
Deferred Sales Charge .00%(1)
</TABLE>
<TABLE>
<S> <C> <C> <C>
Management Fees (After Fee Waivers) .20% .20% .20%
Rule 12b-1 Fees (After Fee Waivers) .25% .25% .25%
Shareholder Servicing Fees .25% .25% .25%
Other Expenses (After Expense Reimbursements) .10% .10% .10%
Total Operating Expenses (After Fee Waivers and Expense
Reimbursements) .80% .80% .80%
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<S> <C>
Management Fees (After Fee Waivers) .20%
Rule 12b-1 Fees (After Fee Waivers) .25%
Shareholder Servicing Fees .25%
Other Expenses (After Expense Reimbursements) .10%
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 Daily 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 $ 8 $ 8 $ 8
3 Years $26 $26 $26
<CAPTION>
Nations
Tax Exempt
Fund
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 Daily 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
4
<PAGE>
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, "Rule 12b-1 Fees," "Other
Expenses" and "Total Operating Expenses" for Daily Shares of the indicated Fund
would be as follows: Nations Prime Fund -- .45%, .17% and 1.06%, respectively;
and Nations Treasury Fund -- .45%, .17% and 1.06%, respectively. Absent fee
waivers and expense reimbursements, "Management Fees," "Rule 12b-1 Fees," "Other
Expenses" and "Total Operating Expenses" for the indicated Fund would have been:
Nations Government Money Market Fund -- .40%, .45%, .19% and 1.28%,
respectively; and Nations Tax Exempt Fund -- .40%, .45%, .18% 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 A DAILY SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS PRIME FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD PERIOD
ENDED ENDED
DAILY SHARES 03/31/96(a) 05/31/95*
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 (in 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 Daily 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
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FOR A DAILY SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS TREASURY FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD PERIOD
ENDED ENDED
DAILY SHARES 03/31/96(a) 05/31/95*
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 (in 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 Daily 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
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FOR A DAILY SHARE OUTSTANDING THROUGHOUT EACH PERIOD
NATIONS GOVERNMENT MONEY MARKET FUND
<TABLE>
<CAPTION>
<S> <C> <C>
PERIOD PERIOD
ENDED ENDED
DAILY SHARES 03/31/96(a) 11/30/95*
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 Daily 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>
<S> <C> <C>
PERIOD PERIOD
ENDED ENDED
DAILY SHARES 03/31/96(a) 11/30/95*
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 Daily 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 (together with U.S. Treasury Obligations, "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 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. 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 and
repurchase agreements secured by such obligations. 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
8
<PAGE>
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; having a long-term rating of
"A" or higher from 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."
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 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.
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 consid-
9
<PAGE>
ered, 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' investments in particular instruments, see
"Appendix A."
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
greater maturities, provided such obligations are subject to demand features or
resets which are less than 397 days, 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.
Addition-
10
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ally, (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 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 Daily 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 Agent (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 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 investment
sub-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 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
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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. Prior to assuming her
position with TradeStreet, she was Vice President and Portfolio Manager for the
Investment Management Group at NationsBank. 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 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
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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, 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 Daily 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 Daily
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 Daily 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. Daily 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.
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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 separate classes of shares -- Investor A, Investor B, Investor C,
Daily, Primary A and Primary B Shares. This Prospectus relates only to the Daily
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 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
Daily 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 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
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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 Daily 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 a shareholder servicing
agreement ("Servicing Agreement") with Nations Fund ("Servicing Agents") and/or
a sales support agreement ("Sales Support Agreement") with Stephens ("Selling
Agents").
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 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.
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 Daily 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 Servicing Agents will provide various shareholder services for, and the
Selling Agents will provide sales support assistance to, their respective
customers ("Customers") who own Daily 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 and Stephens reserve the right to reject any purchase order. The
issuance of Daily 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 Agent transmitting the order, and any funds
received will be returned promptly to the sending 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. Daily 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 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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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, less any applicable CDSC, next
determined after receipt of the order by Stephens or by the Transfer Agent. 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.
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 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 Daily 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 Daily 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,
Daily 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 Daily Shares being redeemed. Daily
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. Daily Shares purchased
directly are not subject to a CDSC. The CDSC is imposed on the lesser of the net
asset value of the Daily Shares redeemed or the initial purchase price of the
Investor C Shares exchanged to acquire the Daily 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 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
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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 Daily 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 Daily 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 Daily 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 Daily 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 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. Daily 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 Daily Shares of a Money Market
Fund to exchange such shares for Investor C Shares of a Non-Money Market Fund or
Daily Shares of another Money Market Fund when that shareholder believes that a
shift between funds is an appropriate investment decision. An exchange of Daily
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.
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No CDSC will be imposed in connection with an exchange of Daily Shares that
meets the requirements discussed in this section. If a shareholder acquires
shares in exchange for Daily Shares of a Fund, the acquired shares will remain
subject to the CDSC applicable to the Investor C Shares exchanged to acquire the
subject Daily 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 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.
Daily Shares may be exchanged by directing a request directly to the Agent
through which the original Daily 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.
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 Daily 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 Daily 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 Daily Shares; providing sub-accounting with
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respect to Daily Shares beneficially owned by Customers or the information
necessary for sub-accounting; responding to inquiries from Customers concerning
their investment in Daily 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 Daily 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 Daily 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 Daily 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.
Stephens may, from time to time, at its expense or as an expense for which it
may be reimbursed under the Daily 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 0.50% of the offering price per
share on all sales of Daily Shares to retirement plans as an expense of Stephens
or for which Stephens may be reimbursed under the Daily 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 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 Daily 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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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.
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. Daily 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 Daily 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
Daily 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
Daily 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 Daily
Shares will be reduced by the amount of retail transfer agency fees allocated to
Daily 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.
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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 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
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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.
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
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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. Pursuant to line of credit arrangements, certain of the
Funds may borrow 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, each of the Funds (except Nations Tax Exempt
Fund) 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 ("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 cor-
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porations 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 obligations
(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'
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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 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 under the 1933 Act, or which
were issued under Section 4(2) of 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 or other buyers cease purchasing such restricted
securities pursuant to Rule 144A or otherwise, 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 obligations with
greater maturities, provided such obligations are subject to demand features or
resets which are less 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
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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 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 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
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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
securities with put or demand features 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 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. U.S. Treasury
Obligations differ only in their interest rates, maturities and time of
issuance. Obligations of U.S. Government agencies, authorities and
instrumentalities are issued by government-sponsored
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agencies and enterprises acting under authority of Congress. Although
obligations of federal agencies, authorities and instrumentalities are not debts
of the U.S. Treasury, some are backed by the full faith and credit of the U.S.
Treasury, such as direct pass-through certificates of the Government National
Mortgage Assocation; 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. 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 take
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 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.
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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 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.
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The following summarizes the three 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.
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
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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.
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